It is pitch dark, the wind is howling and snowflakes are hurtling through the air: Every driver’s nightmare. The cyclist ahead on this country road is hardly visible to the naked eye. But the car’s headlights sense the cyclist’s motion, and thankfully, the driver assistance system kicks in and safely guides the vehicle around the cyclist.
Actually, this is a scene from a simulation. But it shows just how seriously automotive parts supplier, Hella, is taking the idea of fully autonomous driving. After all, trends like autonomous driving and digitalization are changing the auto industry around the world – and they are also creating uncertainties and opportunties for those firms supplying auto parts.
Hella is very well positioned “to benefit from the major trends in the automobile industry,” the company’s chief executive officer, Rolf Breidenbach, recently said at an investors’ event. This has generated some new optimism with regard to Hella’s stock. The share price rose considerably in the second quarter of this year, though, more recently, it has pulled back somewhat.
There are great opportunities for growth in e-mobility. Energy-saving solutions for consumers in auto parts like headlights could increase the range of an electric car.
The recently lowered profit forecast for automotive supplier, Schaeffler, has shocked industry and investors alike. But Schaeffler specializes in clutch systems and transmission parts, and its business model differs sharply from Hella’s. The latter is already one of the world market leaders in radar sensors and camera software for autonomous driving functions, and it is also a leader in the use of LCD technology in headlights.
That’s why analyst Björn Voss of independent private bank, M.M. Warburg, considers the downturn in Hella’s stock price unjustified. “We see Hella as a beneficiary of change in the automotive industry, and as a growth story,” Mr. Voss wrote in his commentary on the company, in which he described Hella’s products for autonomous and electric cars as outstanding. Mr. Voss says €50 would be a decent price for the stock. The company is currently trading at €45.44 ($51.87); that is, 47 percent above last year’s figure.
The preliminary result for the 2016-2017 financial year, which Hella will present on July 20, could bring more momentum. Hella’s financial year finished at the end of May. The company expects an adjusted increase in sales and in adjusted EBIT in the medium single-digit range. In the previous year, the company achieved sales of €6.35 billion, with an adjusted EBIT of €476 million, with each share ultimately generating a profit of €2.42. For this year, analysts expect sales of €6.61 billion and earnings per share of up to €3.
At the investors’ day event in late June, Mr. Breidenbach announced that growth would accelerate in the coming financial year. Industry trends such as autonomous driving, electromobility, digitalization and individualization are expected to drive sales above €7 billion. EBIT is expected to increase by 5 to 10 percent. This would translate to a profit of €3.50 per share.
Mr. Breidenbach has certainly convinced analyst Michael Punzet, an expert in auto industry shares at DZ Bank. “We see Hella continuing to be well positioned to benefit disproportionately from the issues of e-mobility and autonomous driving,” Mr. Punzet wrote in his most recent study.
Mr. Punzet sees automated driving as the prime mover for future business development. Although the legal framework has not yet been fully clarified, he assumes that more vehicles will be equipped with driver assistance systems in the coming years.
Hella also has great opportunities for growth in e-mobility, especially given that short ranges, in connection with the lack of a charging infrastructure, are seen as one of the biggest obstacles to demand for electric cars. Energy-saving solutions for consumers, such as in headlights, could increase the range of an electric car.
Hella has developed full-LED headlights that consume considerably less energy than other headlights, while providing the same performance. Since the market penetration of these special headlights is only about 3 percent, Hella could grow rapidly in this segment.
A weaker global auto market would be dangerous for Hella, but current forecasts do not predict a slowdown in sales. Even the recent diesel scandal has apparently bounced off the car industry. Some 82 million new cars were sold worldwide in 2016. The German Association of the Automotive Industry expects this number to rise to 90 million by the end of the decade.
However, Mr. Punzet has identified a potential danger: Stock owning family members still have non-pooled shares that could be placed on the market or sold to other investors at any time. Neverthless, when Hella went public in 2014, the shareholder family committed to holding at least 60 percent of the shares until 2024 and to act in a unified manner.
That’s why analysts’ opinions of Hella are almost overwhelming positive. Of the 19 recommendations, 11 are to “buy” and eight to “hold.” Right now nobody is saying “sell.”