(BFM Bourse) – The Swiss bank judges that the transformation of the Franco-Italian group is “undervalued” and has returned to purchasing the Franco-Italian company for the first time since 2020. It believes that the company is more diversified with less exposure to Apple.
It took time, more than three years, but the UBS bank is now convinced of the potential of the Franco-Italian semiconductor group STMicroelectronics. The Swiss bank thus returned to purchasing the company this Friday, for the first time since 2020, and adjusted its target upwards to 54 euros from 52 euros.
As a result, STMicroelectronics shares rose 2.7% around 2:40 p.m., marking the largest increase in the CAC 40, at 46.81 euros.
A large part of STMicroelectronics’ turnover is linked to automobiles. However, this segment in semiconductors should experience a downward cycle in the coming years, even if this movement would be “soft” (“light”), the bank anticipates.
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An unjustified discount
To navigate this adverse environment, UBS judges that STMicroelectronics constitutes a good option for investors, because the company very often manages to outperform its market.
“Our analysis shows that STMicro has outperformed (this market in) 83% of quarters over the last five years on revenue compared to 62% over the last ten years, suggesting a significant change in share market and execution”, appreciates the establishment.
The bank judges that the group’s positions in electric vehicles and driver assistance systems (ADAS) will enable it to continue this good trend.
Furthermore, the concentration of STMicroelectronics’ revenues on a few clients – Tesla and Apple, not to mention them – was a source of concern on the part of investors. But UBS believes that this dependence has largely diminished.
STMicro does not publish a breakdown of its revenue by customer. But UBS judges that Apple’s share of total revenue fell from 23% in 2020 to 13% this year, and the bank expects that percentage to decline further in the future.
As for Tesla, UBS estimates that Elon Musk’s group represented in 2019 nearly 90% of STMicroelectronics’ revenues from silicon carbide, a semiconductor compound with properties that allow it to convert energy with great efficiency, and therefore with important applications in electric vehicles. This percentage would have fallen to 50%-60% of these silicon carbide revenues in 2023, according to UBS, which sees this percentage reducing to 41% in 2025.
The Swiss bank concludes that the transformation of STMicroelectronics is “underappreciated by the market”. The promotion of Franco-Italian society thus turns out to be undemanding. The group’s stock trades at 14.9 times twelve-month earnings compared to 20 times for its entire sector, a discount deemed “punitive” by UBS.
Julien Marion – ©2023 BFM Bourse
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