Conti’s 702 million euro EBIT was 10% Ahead of Consensus
Analysts at Morgan Stanley have upgraded their target price for Continental stock following second quarter results that were 10 per cent higher than consensus, while reducing net debt by 220 million euros to 8 billion. “We feel comfortable bringing our ’10 EPS to 4.92 euros and increasing ’11 and ’12 EPS by 25-35 per cent…We believe Conti shares will benefit as the debt refinancing continues – but we cannot justify an overweight rating with only 18 per cent upside potential to our price target. Moreover, numerous unknown factors, including risks related to Schaeffler’s continued 75.1 per cent dominance over the company, keep us on the sidelines,” the bank’s analysts wrote in an investor’s note published on 30 July.
The analysts praised the fact that the Conti’s rubber group’s profit reached record levels, but warned that this is “not to last.” “…the 19.5 per cent [margin] of the passenger and light truck division was surpassed only once in history. Along with recovering truck tyres (4.5 per cent margin) the division delivered a 15.8 per cent margin [including non tyre rubber products], which we believe will mark a peak not to be seen again in the foreseeable future.”
Raw materials are cited as the reason for the predicted short life of this peak, with these costs expected to product a headwind that will “eat up greater than 5 per cent of divisional margin in the second half of 2010 and 2.4 per cent in 2011.”
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