Continental Bullish About 2006

While Continental remains bullish about its prospects in 2006, some analysts are questioning how long the company’s strong run of results can last. Needless to say, the Deutsche Bank market watchers are not complaining about the German business’ financial strength. As one report says “Continental’s CFO was bullish 12 months ago. And he was right.” As far as they are concerned its more a question of “how long can the company continue to grow at this pace?” rather than “when will the bubble burst?”

The only question marks that remain are over the company’s dependency on OE sales. According to the analysts, OE business makes up 62 per cent of sales (38 per cent replacement) and of course a lot of car manufacturers are having a rough ride at the moment. “We are aware that in theory, mechanical effects work the same for a company making 3 per cent or 10 per cent operating profit margin. In reality, it doesn’t,” the analysts observed.”

Referring to Continental CFO Alan Hippe’s predictions that 2006 will be another good year for the company, the Deutsche Bank representative said: “I would agree that 2006 should get some mechanical effects, mostly the payback from restructuring measures. The group’s operating profit margin (an estimated 11.3 per cent in 2005) has become the highest of our Auto part universe.”