Reports: Continental May Sell Bonds in Refinancing Move

Continental AG, is reportedly planning to sell bonds to refinance its debt. Bloomberg quoted two people “familiar with the situation” as saying the move follows HeidelbergCement AG’s so-called junk-bond sale. In this case demand outstripped supply and HeidelbergCement raised 2.5 billion euros selling its bonds. At the same time, Morgan Stanley made “large upward adjustments” to its earnings for Continental, its 2010 earnings per share predictions by 128 per cent to 2.74 euros. The analysts also raised their 2011 and 2012 estimates to 5.14 and 6.35 euros (up 52 and 32 per cent respectively). The bank’s new price target is now 37 euros, up 131 per cent from its previous position of 16 euros.

Deutsche Bank expect Continental AG to achieve sales of 5.3 billion euros (-10 per cent), and a net loss of -125 million euros. “Overall, these numbers should confirm the group’s recovery,” Deutsche Bank analysts commented.

“Out of the 21 euro increase in our Continental price target, 10 euros is attributed to the increase in our earnings forecasts from the 2009 to 2012 period. The remaining 11 euros is due to higher exit assumptions on our five-year leverage buy-out model,” Morgan Stanley’s investor’s note read.

Looking forward to Continental’s third quarter results, which are due to be published on 29 October, the analysts observed: “We expect a 3.9 per cent operating margin in the third quarter led by an 11 per cent margin in the passenger car tyre business.”

“The sooner Conti can bolster its financial position, the sooner the company can capitalise on its strategic leadership,” the analyst wrote, concluding their summary. However, there were also reservations: “Before we can make a higher conviction recommendation, we must wait for more details surrounding Continental’s strategic, operational, financial and structural cooperation with Schaeffler. From this perspective, there are just too many unknowns at present for us to make a high conviction directional (or even relative) recommendation on the shares.”