EQUITY RESEARCH: COMPAGNIE GÉNÉRALE DES ÉTABLISSEMENTS MICHELIN

The primary objective of this equity research project is to estimate the fair value of Compagnie Générale des Établissements Michelin SCA (Michelin) shares as of December 31, 2024, and provide an informed recommendation. The analysis focuses on the global tyre industry, Michelin’s market position, and its financial performance, considering the company’s response to the growing electric vehicle (EV) market and sustainability trends. To value Michelin’s shares, two methodologies were used: Discounted Cash Flow (DCF) with the Free Cash Flow to Firm (FCFF) approach, and multiples valuation using industry ratios. The FCFF method estimates Michelin's intrinsic value based on its cash generation ability, while the multiples approach (EV/EBITDA and P/E ratios) provides a market comparison view. The DCF model produced a target price of €38,63, while the multiples valuation suggested a range between €36,56 and €42,43. These values indicate Michelin’s stock is slightly undervalued. The valuation was supported by an industry and macroeconomic analysis, considering the company’s historical performance, with the DCF model offering a long-term perspective and the multiples approach reflecting market conditions. A scenario analysis using the variables sales growth and terminal growth rate (TGR) was conducted, showing the stock’s value remains stable, with modest upside potential depending on future assumptions. Additionally, the project underscores strategic considerations for Michelin’s management, including adapting to electric vehicle trends through specialized tyre development and advancing sustainability goals by incorporating renewable materials and eco-friendly processes. Based on the results, the recommendation is to buy Michelin shares, as the current market price is below the estimated fair value, indicating modest upside potential.