Will Schaeffler sell some Conti stock on rejoining DAX?
After years of relative quiet regarding speculation about ownership of Continental AG, a relatively weak first quarter at the company’s majority shareholder (Schaeffler) has kick started the rumour mill. The thinking is that the shareholder will off-load some of its share to free up cash flow and support the valuation of Conti as it re-enters the Frankfurt-based DAX German stock exchange.
“We believe a sale of Conti shares is unlikely at current price levels (68 euros) as we think Schaeffler prefers to sell at greater than 75 euros. However, should Conti re-join the DAX index in June we think Schaeffler could be tempted to sell circa 10 per cent of total Conti shares and help the Conti valuation ahead of a further possible sale. Schaeffler has first maturity in Jan 2015 (3 billion euros) so pressure comes mostly from credit and equity markets, not directly from lenders,” financial analysts from Morgan Stanley wrote in an investor’s note dated 29 May 2012.
According to Morgan Stanley, the fact that Schaeffler reported a weak first quarter in absolute terms is relatively unsurprising. Schaeffler’s figures appear to reflect industry trends in the sector. SKF (Schaeffler’s main competitor) for example, reported a first quarter with negative free cash flow on the back of rising capital expenditure and seasonality. The difference between the two is said to be that “Schaeffler has more visibility into the second quarter and full year.”
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