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May 20, 2023

Citywire Selector

In the automotive market, not all things move equally. So when the new car

In the automotive market, not all things move equally. So when the new car market hits the buffers, it will obviously have a knock-on effect on the supply chain for parts, but a retailer of secondhand motors might find themselves heavily in the money as interest in used cars takes off. In a recession, the punters might not splash out on a new set of wheels, but they may well fill the tills of the repair shop that keeps their existing vehicle on the road, or even trade over to a moped or scooter.

Likewise, those working on longer-term cutting-edge technologies such as autonomous driving are likely to remain gainfully employed throughout any downturn.

A downturn is certainly what there's been. Brexit seized up the UK car industry and threw a spanner in the works of the just-in-time supply chain across Europe. Demand for new cars has also been on the wane in the EU and, indeed, in China, the world's biggest market. Yet, despite all of this, some businesses tied in to the sector have continued to thrive.

The five companies on the Citywire Elite Companies Awards shortlist of shares in the vehicles and parts sector that are most popular with the world's top investors have had a pretty healthy time of it, because of the markets they’re in or their distinct approach.

Source: FactSet. PE = price-earnings ratio. PE and dividend yield based on 12-month forecasts

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Among them is a maker of advanced braking systems, a parts supplier and repairer, and the developer of autonomous driving and driver-assist software.

The winner will be revealed at a gala event at the London Stock Exchange on 21 June.

Find out more: Citywire Elite Companies Awards

Founded just outside Bergamo, Italy in 1961, Brembo (IT:BRE) makes discs and braking systems for cars, motorbikes, vans and racing vehicles, including for competitors in Formula 1 grand prix and other motor sports. It also supplies upgrades and spare parts through its aftermarket service. It was named after the Brembo river, which is close to where one of its founders once lived.

While Brembo's sales dipped during the pandemic, they subsequently bounced and Ebit more than doubled last year against 2020. The company reported double-digit year-on-year earnings for the first quarter in May. It also raised its guidance for revenue growth over the full year to 10%, from mid-single digits previously, and said margins would be in line with last year. The group is pressing ahead with a €500m (£430m) investment drive to expand its production capacity in Mexico, China and Poland.

D’Ieteren (BE:DIE) is effectively a holding company for a collection of six businesses, not all of which directly serve the automotive market. The group was founded in 1805 when Jean-Joseph D’Ieteren set up shop as a coachbuilder in Brussels.

The three businesses that do feed into the vehicles market are Belron, which repairs and replaces windscreens and other glass, D’Ieteren Automotive, which distributes Volkswagen marques including Audi, Bentley and Lamborghini in Belgium, and Parts Holding Europe, which sells new car parts across Western Europe.

The three that operate outside the sector are D’Ieteren Immo, a property management business, Moleskine, known for its notebooks, planners and other accessories, and TVH, which sells parts and accessories for the construction, industrial and agricultural sectors. The group clearly benefits from being diversified, although Belron and D’Ieteren Automotive together account for around three-quarters of annual group revenues.

The new kid on the block among listed vehicle businesses is Mobileye Global (US:MBLY). It specialises in what many see as the most important car parts of the high-tech future of driving: driver-assist systems and autonomous driving.

The company was spun out of Citywire Elite Companies A-rated chip giant Intel (US:INTC) in a $16.8bn (£13.5bn) listing last October. Mobileye was founded by an academic in Jerusalem in 1999 and, having listed in New York in 2014, was bought by Intel in 2017 for $15.3bn.

The business's Isaeli roots are the reason why the US-listed company qualifies for our Europe Middle East and Africa (Emea) region awards.

Intel had initially been aiming for a valuation for Mobileye of as much as $50bn, but last year's fierce selloff in tech stocks forced it to lower its expectations. Nevertheless, Intel still made a reasonable profit of more than $1bn from the initial public offering, since when the shares have risen by around 60%, making it worth just under $34bn.

Mobileye's products start with a basic single mounted camera that detects other road users and is designed to assist drivers with their hands on the wheel. Its top-of-the-range SuperVision system, however, uses mapping combined with seven fully rotating cameras and makes driving decisions, although motorists still have to keep their eyes on the road.

The company has plans to roll out Chauffeur, which will use light-sensing technology to create a 3D map of the car's surroundings, in 2024. ‘Drivers’ will only have to intervene in emergencies and accidents.

While revenues more than doubled between 2019 and last year, from $879m to $1.8bn, Mobileye remains loss-making, although it is aiming to move into the black next year. The bet is that its business will take off as autonomous vehicles become popular.

Read more on the Mobileye IPO

Listed in the UK but operating in multiple markets, Inchcape (GB:INCH) is a car retailer and distributor that is much more in control of its destiny than many other forecourt operators, whose fates are essentially determined by the demands of buying motorists. Once part of the sprawling Inchcape empire that floated on the London market in 1958, the business retained the name when it emerged from a crisis-driven break-up at the end of the 1990s.

While it operates as a franchised dealer in new and secondhand cars in the UK, in almost all of the other 40 or so markets it works in, it acts as a distributor for numerous brands from BMW, Mercedes-Benz and Porsche to Subaru, Suzuki and Geely. What this means in practice is that the company controls sales of new and secondhand cars, mainly in what are new markets for the manufacturers, in charge of everything from product planning and logistics to sales and marketing.

This approach not only leads to higher margins but also means it can manage market cycles more effectively. It goes a long way to explain why Inchcape's revenues and profits were rising strongly going into the pandemic and have been recovering swiftly in its wake.

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The fifth company on the shortlist is different again. Established in 1884 and headquartered in Italy, Piaggio (IT:PIA) makes scooters, motorbikes and mopeds under a string of household name brands, including Vespa, Piaggio and Moto Guzzi. Less well known is that Piaggio produces three- and four-wheel light commercial vehicles as well, including its Porter NP6 range launched in 2021.

It also has a robotics division, housed in a research centre in Boston in the US, which aims to develop products to cater to the way mobility will work in the future. In 2019, it launched gita, a cargo-carrying robot that follows its owner inside and outside of the home.

Piaggio has been turning in record earnings, despite the deteriorating macroeconomic environment, notching up record sales last year of more than €2bn and generating a 35.8% increase in pre-tax profits to €127.2m over the period. Sales and profits continued to beat expectations during the first quarter of this year.