Analysts Predict Michelin to Benefit Most from Market Recovery

Financial analysts are predicting that Michelin will benefit most from a margin recovery effect set to hit premium tyre manufacturers in 2010. According to Deutsche Bank, despite a significant negative volume effect, the leading tyre companies have been “very resilient” in 2009. This means they have benefitted form pricing discipline, raw material tailwinds (in the second half) and a positive OE/replacement mix. The analysts believe that next year’s volumes should rebound strongly from their low current level and, coupled with a leftover raw material tailwind and with restructuring paybacks, margins should rebound strongly. “Michelin should benefit the most followed by Pirelli. While Continental should benefit the least [proportionately] since tyres represent only 30 per cent of the group's revenues,” the investor’s note explained.

This year sell-in markets have been significantly worse than sell out markets due to a significant destocking effect at every level of the value chain (fleets, dealers, wholesalers). Looking forward to 2010, Deutsche Bank analysts predict that after a 13-15 per cent volume decline in 2009, sell-in markets could recover by 6-8 per cent in 2010. There could even be stronger growth, since they are still 15-17 per cent below the 2007 levels. “We estimate that 1 per cent incremental volume should have a positive impact on Continental EBIT by approximately 20 million, 70 million euros for Michelin and 12 million euros for Pirelli,” they added.