Analysts predict Schaeffler will sell more Conti stock
Some financial analysts are recommending Continental shares ahead of a possible further sale of some of the stake directly owned by current 49.9 per cent shareholders Schaeffler Group. “Even if Schaeffler were to do another private placement of Conti shares, we think it might not be enough to satisfy investor appetite. We regard Conti as a structural, earnings and free cash flow driven overweight offering an attractive entry point,” Morgan Stanley analysts wrote in an investor’s note published 22 March.
The thinking behind the advice is based on Schaeffler’s recent disclosure about its profits and debt costs, combined with the approaching end of its “12-month sale lock-up”. Together these features can be read as suggesting that the company would consider reducing its stake in Continental. According to the analysts, this is supported by the company’s previous sale (March 2011). So far nothing has been confirmed by the company itself.
However, both analysts and the company alike have always seen the synergetic relationship between the two companies as a cooperation between Continental (leader in electronics) and Schaeffler (leader in mechanics). This, they say, may lead to technical innovation able to fuel another cycle of above market growth from 2014 – 2015. What it doesn’t do is address the role or long-term strategic position of Continental’s Rubber Group. While this – especially its car tyre business – remains a highly profitable entity, the synergies between this and the rest of the business are less clear.
When Schaeffler last placed nearly 15 per cent of Continental shares (the stock it controlled indirectly) on 28 March 2011, Conti shares outperformed the automotive index by 400 basis in the first week. “…a block sale could – in our view – decrease governance concerns, boost the free float and eventually help Conti re-join the DAX index as soon as the second half of 2012,” Morgan Stanley said in the investors note.
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