Profit rise lifts Peugeot shares ahead of Fiat merger

Peugeot maker PSA Group said on Wednesday profitability reached a record high in 2019, results that contrasted with those of many rivals and boosted the group’s shares as it beds down a merger with Italy’s Fiat Chrysler.

The French firm, which also produces cars under the Citroen and DS brands, offset a slump in vehicle sales by selling pricier SUV models, helping to lift revenues. Operating margins grew to a record 8.5% last year thanks to cost savings.

Shares in the carmaker were up 6.6% at 1307 GMT, on course for their best day since October 2018 and making it the top performer on the CAC 40 .FCHI index of major French companies, as worries about the coronavirus market rattled stock markets.

A positive outlook from Moody’s on Wednesday added to PSA’s gains. The rating agency maintained its investment grade view on the company, citing healthy liquidity, and said the merger with Fiat Chrysler (FCA) (FCHA.MI) was positive.

Solid earnings from PSA and FCA earlier this month marked a rare bright spot in the car industry even as they faced hits like others from falling demand in markets like China.

Some rivals such as France’s Renault (RENA.PA) have struggled with sliding revenues and profits as well as lower cash flow generation, leading to ratings downgrades.

FCA, owner of brands like Jeep, did well in North America, which in a combined group with PSA would help balance the company’s portfolio. PSA is more exposed to Europe’s auto market, which it said would shrink 3% this year.

The two companies struck a deal in December to create the world’s No.4 carmaker, to cope better with market turmoil and the cost of making less-polluting vehicles.

PSA boss Carlos Tavares told a news conference the two groups were in good shape and said he did not expect any major regulatory hurdles to the merger, adding it had submitted 14 approval requests to competition authorities out of 24 it needs.

There are no immediate plans to change anything in the large portfolio of brands within the combined group, he added.

“We’ll decide with the people leading those brands what is the best way to go to market … and reduce any cannibalization if there is any,” Tavares said. “I’m more excited by what we can do more of than less of.”

CORONAVIRUS WEIGHS

PSA has trimmed costs in areas such as procuring components as it has integrated its acquisition of Opel and Vauxhall.

New launches of pricier models, including the Citroen C5 Aircross, helped lift revenues by a higher-than-expected 1% to 74.7 billion euros ($ 81.2 billion).

PSA’s group net profit increased 13.2% to a record 3.2 billion euros, and the company increased its dividend against 2019 results to 1.23 euros per share, up 58% from 2018 levels.

The carmaker was “once again very solid”, analysts at brokerage Oddo-BHF said in a note, adding the results confirmed the company’s “best-in-class status.”

But it still faces problems this year, including the coronavirus outbreak which has paralysed production in China and hits carmakers’ supply chain.

PSA suffered 700 million euros in losses last year in China, where its car sales have tumbled and where it is exiting a joint venture with China’s Chongqing Changan Automobile (000625.SZ).

“In January, things were getting better (in Asia) until the coronavirus,” Tavares said, adding PSA planned an electric vehicle “offensive” in China, without giving details.