• Peugeot's drop since May cuts stake value by 768 million euros
  • `The state helped the company rebound magnificently': Gallois

For the French state, the question is not whether it will sell its stake in PSA Peugeot Citroen, but when.

Nearly 24 months after France bailed out Peugeot jointly with China’s Dongfeng Motor Corp., the state is ready to dispose of its stake in the carmaker, a person familiar with the matter said. The company’s full-year results, slated to be released on Feb. 24, will provide a gauge for the state to determine the extent of the company’s turnaround and help it decide on a possible exit, the person said.

While the state will pocket a profit of about 600 million euros ($670 million) if it sells the stake now, it may have missed an opportunity to have made a great deal more by not selling the shares in May, when the stock hit an almost four-year high. Since then, an industry emissions scandal together with tumbling global markets have pulled down auto stocks.Peugeot shares have sunk 35 percent since May 27.

"The timing to sell Peugeot shares is plain negative,” said Saxo Bank trader Andrea Tueni. “There has been a carnage in the auto sector with the emissions scandal and worries about global growth, so selling at these levels doesn’t make sense at all.”

Peugeot shares tumbled as much as 5.1 percent on Tuesday, trading 2.4 percent lower at 12.46 euros as of 12:11 p.m. in Paris.

Tumbling Shares

Peugeot, which posted three consecutive years of losses, is expected to report a profit of EU1.03 billion ($1.15 billion) for 2015, according to the mean of 14 estimates collected by Bloomberg. Global sales rose 1.2 percent last year, led by a 5.9 percent gain in Europe. 

“The state helped the company rebound magnificently,” Louis Gallois, Peugeot’s supervisory board chairman, said on BFM Business radio on Feb. 3.

That hasn’t prevented a slide in Peugeot shares. The tumble since the end of May has shrunk the value of the state’s stake by about 768 million euros, according to Bloomberg calculations. Automakers are the second-worst performers in Europe after banks this year, down 21 percent. The sector is one of the cheapest, trading at 7.7 times expected earnings in the next 12 months, much lower than the Stoxx 600 index’s price-to-earnings ratio of 14.

New Shareholder

Peugeot was rescued in February 2014, when the French state and Chinese partner Dongfeng announced the purchase of 14 percent each. The Peugeot family owns another 14 percent. An exit by the state might remove a roadblock to a partnership with an industrial group for the French carmaker, including a greater participation by Dongfeng.

The French state, which owns its stake through Agence des Participations de l’Etat, said it faced no choice but to save the carmaker that employs more than 100,000 people in the country directly or through contractors.

The state bought the shares for 800 million euros, with a block of shares purchased for 7.5 euros a piece and another at 6.77 euros per share, according to Peugeot statements. At its current market price, the state’s stake is valued at about 1.45 billion euros.

Details of a potential disposal by the French state’s stake -- the timetable and the size of the sale -- have not been outlined yet, the person familiar with the matter said. Economy Minister Emmanuel Macron’s office declined to comment on a possible sale.

“The state would be interested in selling its PSA stake only if it can find a new shareholder that can invest in the company,” said Bertrand Rakoto, an automotive industry analyst at Paris-based D3 Intelligence. “The carmaker needs financing for development. The restructuring is done, now PSA needs to think of its future.”

If it sold the stake today, the state would make a profit of about 600 million euros. In contrast, the U.S. lost $11.2 billion on its bailout of General Motors Co, according to a government report released in April 2014.

China Push

France’s profit would have been greater if it had sold shares over the summer. In July, Peugeot shares rose to 19.46 euros. The stock held above 18 euros until Aug. 11, helped by rising sales and a trimmed workforce. Then Peugeot, like other carmakers was hit by the Volkswagen AG emissions case in the U.S. in September.

The carmaker was also hit by the slowdown in China, where it was looking to boost operations. The expansion in China, the world’s biggest auto market, stemmed from tightened ties with Dongfeng as part of Chief Executive Officer Carlos Tavares’s strategic plan outlined in April, dubbed “Back in the Race.”  The proposals also included investing in hybrid drives, reorganizing the South American and Russian units and cutting the model lineup while turning the DS badge into a full-fledged premium brand.

While external elements will continue to weigh on the company’s shares, the state may see an exit window opening up later in the year, Rakoto said.

“There are likely to be things this year that will provide an answer to when the state can sell,” he said.

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