Industrials

Chris Bryant is a Bloomberg Gadfly columnist covering industrial companies. He previously worked for the Financial Times.

There's a CEO who's delivered even bigger returns for shareholders than Amazon's Jeff Bezos. Not only is his company a manufacturer, it's based in France.

Take a bow, Jacques Aschenbroich, boss of Valeo SA, the French maker of auto parts. The stock has gained 1,300 percent since he took the top job on March 20, 2009, more than the internet retailer's 1,000 percent gain in the period.

The Pride of France
Valeo's shares have rocketed since 2009, outperforming even the mighty Amazon
Source: Bloomberg
Jacques Aschenbroich became chief executive of Valeo in March 2009. Bezos' tenure is much longer than that, of course.

Aschenbroich lacks Bezos' $68 billion fortune and penchant for space exploration. Even so Valeo's performance is undeniably exciting, especially in an industry facing structural upheaval.

Valeo's CEO pushed the company to develop technology that cuts carbon dioxide emissions and automates aspects of driving. He also backed an expansion in emerging markets, including China. 

Diverse Customers
Valeo has tried to increase its share of non-European customers
Source: Valeo

Since then, sales have grown 12 percent a year, about twice the rate of global auto production. The shares, close to a record high, trade at about 14 times estimated earnings -- a big premium to competitors like Continental or its carmaker customers like Daimler.

Maintaining that momentum is going to get tougher -- especially in a deeply cyclical industry where U.S. demand is showing signs of slowing. But for now Valeo is cruising. 

Orders, an indication of future revenue, climbed 20 percent in the first six months of 2016. Absent a collapse in car sales, Valeo should reach 20 billion euros in annual revenue at least a year earlier than its 2020 target, according to analyst estimates compiled by Bloomberg.

Geared for Growth
Valeo's revenues have expanded at quite a clip and there should be more to come
Source: Bloomberg
nb 2016-2019 are analyst estimates. Only three analysts provided a figure for 2019.

The shift to more ecologically-friendly vehicles looks like it will benefit Valeo. The company reckons the value of powertrain equipment it can provide for an expensive plug-in hybrid vehicle is as much as nine times greater than a regular car, while for advanced battery electric vehicles the figure is seven times.

Analysts also point to Valeo's 48 volt "mild hybrid" technology as a potential winner. The system recovers energy when the car brakes and then uses it to help the car accelerate again. That means a combustion engine car doesn't need such a large engine, which improves fuel economy and cuts emissions, without requiring a total redesign, saving the carmaker money.

There is one fly in the ointment. New products require more spending on research and development.

Valeo's gross research and development spending exceeded 10 percent of original equipment sales last year. While this is an investment in the company's future, it compares unfavorably with Continental's 9 percent. Volkswagen spent 7 percent.

None of this expenditure appears to be squeezing Valeo's profitability. The operating margin is set to expand to 8 percent this year from to 6.8 percent in 2013. But Morgan Stanley analyst Victoria Greer notes that Valeo capitalizes more of its R&D spending than Continental. If Valeo had expensed all its R&D costs through its income statement rather than adding some to the balance sheet, its reported Ebit margin would have been a percentage point lower in 2015.

But, for once, I'll leave the nitpicking there. Investors are accustomed to viewing Europe as an economic dead zone and tend to see French companies, with their long lunch breaks and fractious trade unions, as un-competitive.

Valeo is a reminder that these biases can be a killer for shareholder returns. The company's name -- latin for "I am well" -- seems to be more than just corporate bluster.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Both figures refer to their respective automotive businesses

To contact the author of this story:
Chris Bryant in Frankfurt at cbryant32@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net