Fitch upgrades Peugeot

Fitch Ratings said it upgraded Peugeot SA’s long-term issuer default rating and senior unsecured rating to BB from BB-.

The outlook is stable.

The upgrade reflects the continuous improvement of the company’s profitability and cash generation, low leverage and expectations that this strengthening is sustainable, Fitch said.

This improvement is illustrated by the better-than-expected first quarter of 2015 automotive operating margins and free cash flow margins, the agency said.

While the rest of 2015 and 2016 operating and free cash flow margins will be weaker than those reported in the first half of 2015, credit metrics are expected to remain commensurate with a BB rating in the foreseeable future due to the structural improvement of the cost base, Fitch said.

The company’s business profile is solidly positioned in the BB rating category, although the group remains reliant on Europe and is of a fairly modest size compared with global peers, the agency added.

Peugeot has limited potential for synergies on a standalone basis and a strong need for external alliances, notably to lower development costs in a cost- and asset-intensive industry, Fitch added.

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