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Analysts: High Raw Material Prices Protect Tyre Manufacturer Margins

Following Bridgestone’s recent decision to increase prices in North America, Deutsche Bank analysts have observed that high raw material prices are allowing the leading players to indirectly influence market prices. In their words, Bridgestone’s recent 8 per cent price hike is a “good indication that the oligopoly is working.” The market watchers continued: “Prices are, paradoxically, a good protection on margins.” Assuming that only 50 per cent of these price increases are being sustained within the market, this would allow the manufacturers to offset a 12 per cent synthetic rubber or natural rubber price increase, according to Deutsche Bank.

29th January 2008/by Tyrepress Editors

Michelin: OE Customers Prepared to Pay Extra for “Green Tyres”

Analysts from the Société Générale report that Michelin representatives have, during a Roadshow event, expressed the opinion that OE manufacturers would be prepared to spend extra for environmentally friendly “green tyres.” The willingness to spend extra for such a product would no doubt be aided by CO2 emission reductions currently on the EU agenda; reductions of 120 to 130 grams per kilometre may in future be required.

Should Michelin’s predictions be correct, it will not only be the environment that benefits; while environmentally friendly tyres currently cost the consumer more to purchase, the manufacture of “green tyres” requires less raw materials, thus lowering production costs.

18th January 2008/by Tyrepress Editors

Analysts: German Winter Tyre Pricing Negative

With German winter tyre sales underperforming this year, Deutsche Bank analysts are reporting that prices are falling for the first time in “many years.” Up till the end of October, the German winter tyre market is reportedly down 6 per cent. Around 75 per cent of the winter tyres would normally have been sold by now. Winter tyres represent approx 17 per cent and 6 per cent respectively of Continental and Michelin’s passenger tyre unit sales. According to the analysts, winter tyres represent a high 20 per cent of European tyre replacements (55 million units, of which 50 per cent are sold in Germany).

3rd December 2007/by Tyrepress Editors

Analysts Aim to Encircle Tyre Market

A new market research company is offering custom made insights to the automotive aftermarket and particularly the tyre sector. Birmingham-based Encircle Marketing produces 100 per cent independently researched data that encircles (if you will excuse the pun) the market’s key research areas: mystery shopping, “sell-out” tyre (brand) pricing and selling way (sales augmentation).

The research is produced monthly and captured by both mystery telephone calls (over 5,000 per month) and mystery visits. Local Independent Garages, Regional Garages/ Dealers, Car Dealerships, Autocentres and Fast Fits are all covered. The company reports that it already captures over 3,500 retail “sell-out” tyre prices each month across all the major tyre brands and speed ratings in car, 4×4, and van sizes. This way, they say, 80 per cent of the market is covered.

26th November 2007/by Tyrepress Editors

Michelin Trims Labour Cost/Sales Ratio in 2007

Michelin is on track to improve its labour cost/sales ratio by 2 per cent annually, claim analysts. A report from Deutsche Bank shows that the group employs approximately 73,000 people in what are considered high labour cost countries; in 2007 natural attrition causes such as retirement saw 4,000 people from these countries leave Michelin. On top of this figure a plant closure in France saw 800 jobs cut; restructuring in Italy led to 200 redundancies; in Japan 500 jobs disappeared due to restructuring; and a thousand left the company in Spain as the result of ‘accelerated pre-retirements.’ Overall, 6,500 workers – 9 per cent of the workforce in high labour cost countries – left the Michelin group in 2007, a number Deutsche Bank calls “impressive.” The bank adds that, even if some of these workers are replaced – and less than half are expected to be replaced at a much lower wage rate – the Michelin group will be on track to meet the aforementioned labour cost/sales ratio improvement and to improve group productivity by 20 per cent by 2010.

20th November 2007/by Tyrepress Editors

Pirelli 9 Month Results Expected to be Flat or Lower

Analysts expect the nine-month operating results released by Pirelli & C SpA to be flat or slightly lower due to the mixed performance of the company’s various divisions. Analysts have predicted a net profit of between 91 and 114 million euros compared with a loss of 1.411 billion euros in same period last year, an EBIT of 280 to 297 million, down from 300 million last year, an EBITDA of 441 to 462 million, against last year’s 462 million, and sales of 3.856 to 3.929 billion.

Pirelli Tyre is expected to benefit from volume increases in emerging economies, offsetting the impact of higher raw material prices. However, margins are expected to be particularly hard hit by higher raw material prices, one analyst commented. A second Milan based analyst noted that Pirelli has little exposure to the US market, and is thus in part insulated from the weaker dollar’s negative impact on sales. “The US represents 8 per cent of sales. They are more present in Latin America that is going very well,” he said.

9th November 2007/by Tyrepress Editors

Analysts Question Cooper’s Underlying Performance

In an analytical note entitled “When Will Nonrecurring Items Not Recur?” Deutsche Bank market watcher Rod Lache remarked he was disappointed with Cooper’s “underlying performance.” The manufacuturer’s recently published third quarter earnings per share results were, however, in line with estimations.

North American earnings improved $28 million year-on-year. But the analysts suggested that there are still problems with the company’s cost structure. The note stated: “While we believe that the inefficiencies being experienced by Cooper Tire may in fact be temporary, CTB must execute cost reductions, and management needs to specifically identify those improvements, before the market begins to buy into the sustainability of the company’s turnaround plan.”

8th November 2007/by Tyrepress Editors

Amtel-Vredestein Set to Sell Controlling Interest in AV-TO

Russian news sources are reporting that Amtel-Vredestein is selling the controlling stake in its less than profitable retail network. One source named Michelin as a possible buyer. If Michelin does buy the controlling interest, analysts are suggesting the chain may stop selling Amtel’s tyres at its points of sale, which will affect roughly 20 per cent of Amtel sales. Despite this, Amtel looks likely to hold onto shares in the retail chain.

6th November 2007/by Tyrepress Editors

Panic in Detroit: 2007 Auto Sales to be Down

(Akron/Tire Review) Industry analysts say that 2007 may end up being the worse ever year for new car sales. September sales, analysts say, are expected to show weak results, due in part of high gas prices, credit troubles and other economic factors, and the final quarter of the year indicates things won’t get better.

Jesse Toprak, chief economist for the auto information site Edmunds.com, predicts Honda Motor Co. will be the only automaker to report an increase in sales, helped by the arrival of the new 2008 Honda Accord. Automakers are scheduled to report September sales Tuesday.

“No one is immune to this general weakness we have in the marketplace,” Jesse Toprak, chief economist for the auto information site Edmunds.com, told the AP. Sales for September are expected to be down as much as 4 per cent vs. September 2006, with Honda expected to be the only automaker to show n increase.

Ford, GM and Chrysler are expected to be down month-over-month. One analyst forecasts an annualised selling rate of 15.9 million vehicles for the year, down from 2006’s 16.6 million vehicles.

1st October 2007/by Tyrepress Editors

More Details on Michelin’s Efficiency Improvement Plans

Following a roadshow in the US hosted by financial analysts at Deutsche Bank, further details of the previously reported Michelin corporate restructuring programme have been released. The company is said to be aiming for a 30 per cent productivity increase by 2010 (10 per cent from production increase/ 20 per cent from workforce consolidation).

In addition Michelin is said to be looking to produce a better equilibrium of production/sales by continent. This is likely to have a significant effect on the European business as Europe represents 70 per cent of the group’s production compared with only 50 per cent of sales. Plant size is also likely to be rationalised, with the ideal size being described as 8 to 10 m passenger tyres and 2 million truck tyres per annum – basically double the current size of some plants.

Deutsche Bank reports that Michelin’s management still believes in a potential shortage of truck tyres in 2008.

28th September 2007/by Tyrepress Editors

Canadian Tire Rated “Outperform”

Analysts at Credit Suisse recently gave Canadian Tire Corp Ltd an “outperform” rating, setting the target price at C$88. In their research noteg, the analysts mention that the rising mix of square footage for the company’s new format stores is likely to lead to an improvement in returns going forward. Canadian Tire is expected to post growth in the high-single-digit range, aided by growth in its gross average receivables balance, the analysts said. The company is also expected to witness EPS growth in the low-double-digit range going ahead, driven by apparel and financial services segments, Credit Suisse added.

24th September 2007/by Tyrepress Editors

Analysts: Goodyear Poised for Growth

Goodyear shares have overcorrected “amid confusion over its second quarter performance and concerns about the slowing US economy.” That’s the view of analysts at Deutsche Bank who predict that “the current low valuation and low expectations present a compelling opportunity.”

The analyst’s report explained that Goodyear’s EBIT margins have been that of a somewhat schizophrenic company; achieving segment pre-tax margins approaching 11 per cent outside of North America but less than 1 per cent within North America.

18th September 2007/by Tyrepress Editors

Michelin: European Tyre Volumes Strong in July

Passenger tyre demand increased by 7 per cent in Europe and by 9 per cent in North America, mostly driven by OE demand of +11 per cent and +21 per cent respectively. According to a Deutsche Bank report, July truck tyre demand remained strong in Europe, growing 9 per cent (a positive trend confirmed by truck OEMs who are trying to secure tyre deliveries for 2008) and in Brazil, where volumes rocketed 23 per cent. However, truck tyre demand remains extremely weak in North America (down 13 per cent). According to the analysts this was driven by the very weak OE – down 36 per cent – manufacturers had expected. However, overall July was reportedly a strong month especially for European companies.

5th September 2007/by Tyrepress Editors

Amtel-Vredestein Founder Reduces Share in Company

The founder of Amtel-Vredestein, Sudhir Gupta, has reportedly sold 17.9 per cent of his holdings, reducing his stake in the Russian tyremaker to 11.4 per cent. Analysts also expect Gupta to part with the remainder of his holdings, which they say means the free-float of the company could reach 59 per cent. Should this level be reached, the position of the holding’s senior management, including CEO Petr Zolotarev, would be significantly strengthened.

Gupta sold the 17.9 per cent stake between July 18 and August 22 at a range of US$5.21 to $5.68, which reportedly created $63 million to $69 million return to Gupta. The stocks were acquired by a number of Western capital funds. Russian media also reports that “Mr. Gupta will sell all stocks of the holding and withdraw from its board of directors.”

The tyremaker owns three factories with Russia; Moscow, Voronezh and Kirov, plus a plant in Enschede, the Netherlands, as well as the AV-TO chain of stores, which sell and automotive parts. The company sold thirteen million tyres in 2006.

29th August 2007/by Tyrepress Editors

Private Firms “Prey For Value Hunters”

The UK’s dwindling number of privately owned tyres, exhausts & batteries firms are looking more and more like potential takeover targets, according to a new report by business analysts Plimsoll Publishing. Latest research shows that 804 of the UK’s top 1000 tyres, exhausts & batteries companies remain in private hands, and their values are increasing faster than those of their corporate competitors. Their exclusivity, niche products and unique services are adding to their attractiveness.

Another more practical factor is also coming into play, according to Plimsoll’s senior analyst, David Pattison. “The increasing age of owners and principals at some of these companies is causing them to consider their choices,” he says. “While many family firms have succession plans in place, an offer for the company at the crucial moment is often listened to sympathetically, as the new generation review their options.”

But the big prize for corporate and private raiders is the hidden potential of family-run companies. Current owners typically strip out 80 per cent of profits as fees. To the value hunter, this is a huge platform on which to build. But for those who are not averse to the idea of a takeover, their past activity may backfire on them.

13th August 2007/by Tyrepress Editors