PSA Peugeot-Citroen's first half 2007 group margin was stronger than expected at 2.7%, but its 2.0% guidance for the second half looks cautious, Banca IMI analyst Sabine Blümel said.

She said the H1 rebound was stronger than expected with the automobile division reporting a 76.2% year on year jump in operating profit to EUR400m and a 1.7% margin, "considerably better than our cautious expectation of +7% to EUR243m and 1.0% margin."

"The margin improvement to 1.7% in H1 07 versus 1.0% in H1 06 and 0.2% in H2 06, was driven by new model introductions over the past 18 months and cost cutting," Blümel said in a research note.

"In detail, the factors contributing to the EUR173m improvement in automobile operating profit were a better product mix (EUR96m), better pricing (EUR56m), a 1.7% increase in the sale of fully assembled cars (EUR49M) and cost savings from purchasing and production efficiency gains (EUR357m).

She said negative factors included as expected, higher raw material prices (-EUR192M) and a negative geographic mix (-EUR 45M): sales in western Europe, which are estimated to be more profitable, remained flat year on year, while international sales, which are believed to be less profitable, were up 8.8%.
"As a result of the strong recovery by the automobile division, group operating profit was up 27% to EUR842m or a 2.7% margin, considerably better than our - and the market's - expectations (of 2.2% and 2.5% respectively); group net profit was up 62% yoy to EUR492M/1.6%," Blümel wrote.

Banca IMI said PSA's guidance for H2 07 is a slight increase in group revenue and sales and a group operating margin in excess of 2.0%, versus 1.6% a year ago. CEO Christian Streiff cited concerns over high raw material prices and a strengthening euro as reasons for his caution despite an expected further improvement in model mix and pricing.

"However, in view of management's cautious [H2] guidance, we see only limited scope (in the order of 10%) for an upgrade of our current full-year 07 estimates for group operating profit of EUR1.32bn (+2.2%), Blümel wrote.

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