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We decreased our price target on Valeo from €78.56 to €69.50 before the sales and revenue release out tomorrow. The reason why we are reducing the price target is just a result of a reduction in the forward P/E multiple and not a reduction in our forecasts going forward. It is not because we are concerned the results will not meet expectations.
Markets have rallied strongly since the start of the year and we reduced the P/E multiple from 16x to 14x in line with its 5-year historical average.
Given our positive outlook for the global economy and preference for cyclical stocks, Valeo continues to remain one of our top holdings for 2017. We hold a 6% position in Valeo in the equity fund.
About the Company
Valeo SA manufactures automobile components. The Company manufactures clutches, engine cooling, parts, lighting, electrical systems, windshield wipers, motors and actuators, security systems, electronics, and connective systems for automobile manufacturers and the aftermarket. Valeo's products are sold in Europe, Asia, North America, and South America.
Rationale to invest in Valeo:
Main objectives from the new plan are to:
Valuation
We have a price target on Valeo of €69.50, which was derived from our earnings based model. In our valuation we are assuming that the Groups attractive EBIT margins will be maintained going forward due the attractiveness of the products this company offers.
Conclusion
We are comfortable holding Valeo in a well-diversified portfolio. It is well-positioned to continue to benefit from further growth in the auto industry, as global economic growth continues to remain supportive.
Valeo has a strong set of financial statements and we expect the company to continue strengthening its position in years ahead.
We hold a 6.0% position in Valeo in the equity fund.
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