Audi, BMW and Volkswagen are all well-known companies in the auto industry. However, if I had to mention Valeo most people would not know what this company is all about.
Valeo is an automotive supplier, partner to most automakers worldwide. As a technology company, Valeo proposes innovative products and systems that contribute to the driving experience mainly through the reduction of CO2 emissions and the development of intuitive driving.
Shares in Valeo have performed extraordinary well so far this year. Year to date Valeo is up 45 per cent. This is much better performance than that of BMW and Volkswagen which returned 22 per cent and 26 per cent respectively.
The following are the reasons why I think Valeo should continue to outperform the auto market in the coming years.
Supplier to many well renowned brands
If you are bullish on the auto sector, a company like Valeo is worth considering as a constituent in a portfolio because it is not exposed to just one company.
For example if Audi had to report a reduction in sales in Asia for whatever reason, it could be that another brand such as BMW is increasing sales in the same region. Since Valeo’s products are found is both brands, the probability is that the increase in sales in one brand will make up for the reduction in sales of the other.
Sales
Whereas an automaker’s top line depends on how many new cars it manages to sell, Valeo’s sales are dependent both on new car sales as well as aftermarket sales. This means that Valeo’s sales are not dependent just on new car registrations but also on sales for cars in need of replacing a part.
Keeping up to date with latest developments in technology
Today the auto industry has become much more integrated than it was in the past. Today you could own a car with one brand which has an engine made by another brand etc. Most players in the auto industry have upped their game and are producing reliable cars.
What distinguishes one brand from another is the level of technological development within the car itself. Key growth drivers for the Company include Park4U driving assistance, stop start systems, lighting systems with LED lights, electron wiper systems etc.
Regulation in the industry getting stricter
Cars are responsible for around 12 per cent of total EU emissions of carbon dioxide (CO2), the main greenhouse gas. The law requires that the new cars registered in the EU do not emit more than an average of 130 grams of CO2 per kilometre (g CO2/km) by 2015. By 2021, phased in from 2020, the fleet average to be achieved by all new cars is 95 grams of CO2 per kilometre.
Valeo offers a complete range of products from climate control systems to led lighting to combustion engine systems to help reduce fuel consumption and CO2 emissions.
Conclusion
Valeo (45 per cent up YTD) outperformed both the auto stoxx 600 (32 per cent up YTD) and the Euro Stoxx 50 (19 per cent up YTD).
If you take into account that the auto industry has been one of the best performing sectors when central banks carried out quantitative easing and that Valeo has all the right cards in place to take advantage of an improvement in global growth, it should be considered as a potential constituent in a well-diversified portfolio.
This article was issued by Kristian Camenzuli, Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt . The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.