PARIS -- Shares in French car parts maker Valeo SA fell more than 3 percent on Tuesday amid new worries about the effects of a rise in raw material costs on earnings and after a share target price cut by a leading French bank.
It was the second consecutive loss for Europe's largest listed car parts maker, as it suffered on Monday in the fall-out from the Chapter 11 bankruptcy protection filing by U.S. rival Delphi Corp. on Saturday, Oct. 8.
French bank Societe Generale said in a note on Tuesday it was cutting its EBIT margin forecast for 2006-07 by 20 basis points, and this had a 5-percent impact on earnings per share.
Societe Generale maintained its "sell" rating and cut the fair value estimate to 30 euros from 33 euros per share.
"After speaking with the company, it appears that the raw materials situation remains a decisive factor for earnings in the short term," Sopciete Generale analysts said. "While steel prices have stabilized, plastics and non-ferrous metal prices have on the other hand increased since June and reached record levels," they added.
"Consequently, we believe that this new situation may hurt margins next year. It may be more difficult to pass on these price increases to carmakers, who have been hard hit themselves," they added.
Valeo stock was down 2.50 percent at 32.76 euros, up from a low of 32.50, following a 9 percent increase this year. Its first-half profit was down 60.1 percent on the rise in raw material costs.
Shares in sector peer Faurecia slipped 0.41 percent to 60.75 euros. Faurecia, set to report third-quarter sales on Thursday, Oct. 13, announced on Tuesday it would reorganize its engine-aspiration business in France, employing 370 people.
"The bankruptcy filing of Delphi is not good news. It underlines the fact that the sector has a problem in that it is squeezed between higher raw material costs and the pressure by U.S. car makers to cut costs," Societe Generale Securities analyst Philippe Barrier said.
Credit Agricole Cheuvreux also cut its price target for Valeo to 32 euros from 34 euros, and its earnings per share estimate by 4 percent.
Valeo was not the only parts maker to suffer in the wake of Delphi but Morgan Stanley analysts said in a note that the decline in share prices of suppliers should be used as an opportunity to add to positions in suppliers with solid growth prospects.
Morgan Stanley highlighted Autoliv and Continental for which it has an "overweight" rating.