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Peugeot Falls to 27-Year Low on Citigroup Recommendation

Nov. 8 (Bloomberg) -- PSA Peugeot Citroen, Europe’s second-biggest carmaker, traded at the lowest price in almost three decades after Citigroup Inc. cut its recommendation on the stock because of the manufacturer’s struggles with cash.

Peugeot fell as much as 5.2 percent to 4.51 euros at 4:17 p.m. in Paris, valuing the company at 1.61 billion euros ($2.05 billion). The stock is at the lowest since 1985, when it cost as little as 2.21 euros, according to data provided by exchange operator NYSE Euronext.

The manufacturer said in July that it had been burning through about 200 million euros in cash monthly at its automotive unit for the past year, and it widened the forecast for net debt. Liquidity at Peugeot may become stretched by the end of 2014, analysts at Citigroup, including Philip Watkins in London, said today in a research report.

“The most important capital market for Peugeot right now is the credit-investment community,” Watkins wrote. “Credit investors are needed to keep PSA functioning through the downturn, and that makes shareholder interests less relevant.”

Citigroup reduced its recommendation on Paris-based Peugeot to sell from neutral, and lowered the stock-price estimate by more than half to 3 euros from 8.50 euros.

Debt Forecast

Peugeot said in October that net debt at the end of 2012 will total about 3 billion euros, versus a prediction in July of 2.5 billion euros, as industrywide auto sales in Europe head for the biggest drop in 19 years. Moody’s Investors Service cut Peugeot’s long-term debt rating to three levels below investment-grade on Oct. 10, adding pressure on its banking unit, Banque PSA Finance, which is still rated investment-grade.

France’s government stepped in on Oct. 24 to rescue Peugeot by guaranteeing as much as 7 billion euros in new bonds in exchange for greater influence over company strategy. The automaker needed the French state backing for the banking unit to keep down borrowing costs and offer customers competitive financing rates.

The state and workers will each receive a seat on the board of directors, and an outside committee will be set up with veto power over any “significant” changes in Peugeot’s operations, the French Finance Ministry said.

“We share investor concerns that the provision of state guarantees for bond issuance could slow down the process of capacity reduction,” the Citigroup analysts said. “However, it is not in the state’s interest for PSA to be so hampered with capacity as to run out of cash. Political rhetoric and the reality of what will be done will likely remain mismatched.”

To contact the reporter on this story: Mathieu Rosemain in Paris at

To contact the editor responsible for this story: Chad Thomas at

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