Analysts Welcome Pirelli Broadband Sale, Expect Aggressive Capital Investment
Despite affirming that Pirelli’s recent sale of its broadband business confirms the company’s focus is on its tyre operations, some financial analysts have responded by saying Pirelli’s stock sentiment has peaked for the time being. Their thinking is that the company is on the brink of announcing a series of capital expenditure investments. In response to news that Pirelli sold its broadband operations to ADB for 30 million euros, a Morgan Stanley investor’s note said: “We valued the business at 13 million equity value, the sale price is 30 million (the difference is irrelevant for the share price).”
According to the analysts the sale, which had been pre-announced by the chairman Marco Tronchetti-Provera a couple of months earlier, “could be slightly positive for the sentiment as it is the ultimate proof Pirelli is entirely committed to the tyre business, but after the disposal of the Real Estate Business we believe only few had doubts.”
This means Pirelli is now left to focus on its tyre business and therefore the firm’s industrial plan (which was scheduled for presentation on 4 November) is now at the forefront of the minds of market analysts like those at Morgan Stanley that believe it will “put pressure on the free cash flow due to an aggressive capital expenditure plan.” As a result “we believe the sentiment on Pirelli has peaked and we recommend to switch into Michelin, the least loved auto stock at the moment,” the investor’s note dated 21 October 2010 concluded.
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