Research Update: German Truck Manufacturer TRATON SE Assigned 'BBB' Rating; Outlook Stable

TRATON SE is the leading truckmaker in Europe and South America, with market shares of about 30% in both regions. The key brands include Scania, MAN and VWCO. The company has started an extensive program to use similar powertrain components across the brands, where it is targeting long-term synergies of up to €700 million and over-the-cycle return on sales of about 9%, up from about 7% in 2019. For 2020, given the COVID-19-related recession, we expect break-even or even slightly negative reported operating profit for the industrial business, down from €1.7 billion in 2019 (6.6% margin) and a decline in adjusted funds from operations (FFO) to debt to about 30% from about 200% in 2019. We view the company as

...- TRATON SE is the leading truckmaker in Europe and South America, with market shares of about 30% in both regions. The key brands include Scania, MAN and VWCO. - The company has started an extensive program to use similar powertrain components across the brands, where it is targeting long-term synergies of up to 700 million and over-the-cycle return on sales of about 9%, up from about 7% in 2019. - For 2020, given the COVID-19-related recession, we expect break-even or even slightly negative reported operating profit for the industrial business, down from 1.7 billion in 2019 (6.6% margin) and a decline in adjusted funds from operations (FFO) to debt to about 30% from about 200% in 2019. - We view the company as a highly strategic subsidiary for its 89.7% owner Volkswagen AG (VW). - We are assigning our '###' long-term issuer credit rating to TRATON. - The stable outlook reflects our expectation that the company will successfully execute its margin and cash flow preservation measures and...

Research Update