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Volvo Equity Rallies On Dividend Though EUR Spreads Muted

CONSUMER CYCLICALS
  • Volvo's 4Q23 results showed increased sales, deliveries, and adj- EBIT YoY, exceeding consensus expectations, but with a 9% decline in truck order intake with gains in the Americas, Africa and Australia being by declines in Europe and Asia.
  • The dividend payment of SEK 36 is on the larger side (+25% YoY) though the net cash balance of SEK 83bn and unused credit facilities of SEK 52bn against 2024/2025 maturities mean ST liquidity is adequate.
  • Volvo plans a 10% production cut at the Tuve plant, in line with the anticipated 12%/16% decline in North America/Europe markets for 2024, seen as a normalization rather than a recession indicator.
  • Given negative EBITDA leverage, the company is not close to downgrades from any of the rating agencies though the worsening auto environment likely makes upgrade equally unlikely over the ST/MT.
  • Volvo’s high rating, the remote chances for rating changes and the presence of the record dividend saw equity rally 1% today while EUR spreads remained muted, trading mixed beyond the extreme short-end.
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