October 14, 2024 10:15 GMT
AUTOMOTIVE: Schaeffler (SHAEFF Baa3[N]/BB+/BB+): Moody’s Outlook Negative
AUTOMOTIVE
Moody’s sounds very willing to give Schaeffler time to execute the Vitesco integration. Room for error has tightened due to industry pressures; assumptions seem quite optimistic.
- Schaeffler is the latest name whose rating is affected by the auto slowdown. The picture is complicated by the recent merger with Vitesco. Moody’s is positive on the scale, synergies and electrification exposure benefits.
- The Vitesco transaction is initially margin dilutive at a time when Schaeffler’s core margins are coming under pressure. FY EBIT guidance was reduced by 1% in July following a 1.3% YoY decline for 1H. Moody’s expects a 50bp decline in its adj. EBITA measure this and next year, to 5.5% and 5%. The rating threshold is 7% which is its 2025 expectation ex-Vitesco. They expect a 2026 recovery as synergies kick in. Consensus sees a shallower recovery path.
- Debt/EBITDA is expected to peak at 4x this year before declining. 3x is the threshold for ratings.
- Moody’s expects negative FCF this and next year, not helped by an increased dividend payout policy. This will also need to revert to positive over the medium term to preserve the rating. Consensus sees small negative FCF after dividends before close to breakeven in 2026.
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