21 July 2020 by jbchevrel
Schaeffler AG (SAG) is a Germany-based company primarily engaged in the manufacture of automotive parts. Its activities are divided into 2 segments: Automotive and Industrial. Automotive comprises Engine Systems, Transmission Systems, Chassis Systems and Automotive Aftermarket. Yesterday evening, S&P downgraded SAG to BB+, anticipating that SAG’s Automotive segment will suffer severely from subdued production volumes. These are seen as unlikely to reach 2019 levels before 2022-23. S&P also expects SAG’s Industrial segment to suffer. Then in Q1, SAG sales were impacted by COVID, Automotive the most (-12%, FX-adj.) while adj. EBIT margin was relatively immune at 6.5% (thanks to 11% in Industrial 17% in Automotive After Market). Ex-M&A FCF was €137M in Q1, thanks to CapEx prioritization (€164M) and Working Capital reduction. Q1-19 FCF had come at -€235M, back then due to weaker Operating Results and higher CapEx had weighed. Q2 numbers will come on August 4th and will provide us with more clarity on COVID impact on SAG businesses. SAG CDS is now close to where it was before the COVID (140bp close today, despite some weakness this morning). In March it had peaked at 480bp.