Deutsche Bank analysts have downgraded Bridgestone shares to hold. The news comes after the Japanese company’s share price reached the analysts’ target level. Bridgestone shares are now rated as ‘hold,’ with a modified target price of 2450 yen against the previous level of 2500 yen.
Cooper Tire will have to slow production by approximately 30,000 tyres per day due to raw material supply disruptions associated with Hurricane Rita, analysts have reported.
Deutsche Bank analysts are convinced that Continental’s US passenger car division has made losses of up to 200 million euros last year. The closure of Conti’s Mayfield facility was expected to have cost up to 120 million euros alone. Financial experts have abandoned hope for a noticeable and continuous growth. During 2005 the tyre manufacturer is expected to come up with an annual loss of about 100 million euros, says Deutsche Bank, meaning that the shutdown of the Mayfield factory didn’t have its expected positive affect.
Sumitomo figures for the half-year ended 30 June 2005 show that net sales amounted to 230.6 billion yen (£1.15 billion) as opposed to 216 billion last year. During the same period operating income increased from 17 billion yen (£87 million) in the first half of 2004 to 20.6 billion yen (£103 billion).
Market analysts from Deutsche Bank described the results as ‘firm’ and increased their sales forecasts. “We leave our operating forecast unchanged, as we believe the company can offset rising material prices through tyre price increases, product mix improvement, and expanded production volumes,” said Deutsche Bank representatives adding: “Management remained conservative, leaving its full-year forecasts unchanged, suggesting that an upward revision is probable at some stage. We forecast 10 per cent operating profit growth in the 2006 full year, as further price rises and output expansion offset a range of cost increases.”
Analysts are predicting that Continental will record strong EBITA growth “in the magnitude of 30 – 35 per cent,” alongside “limited sales growth” when the company reports its second quarter figures tomorrow. “However, this will be nearer 2-3 per cent on a like for like basis due to a particularly strong second quarter in 2004 (i.e. passenger car sales went up 9 per cent in the second quarter of 2004). Due to higher Capex and the full payment of the dividend, we don’t expect any debt reduction in the second quarter. Debt reduction should accelerate in the the third and fourth quarters,” the Deutsche Bank analysts added.
Sumitomo Rubber has announced that it will raise domestic market tyre prices by between 4 and 4.5 per cent in September. The company’s move is said to be in response to the higher cost of synthetic rubber and other input materials.
Analysts have suggested that this is a positive step, which could result in a 2 billion yen boost in full year operation profit. As a result the company’s share went up 1.4 per cent to 1,130 yen. “We maintain our full-year earnings forecasts, as our figures are already above the company’s, and recent rises in materials costs could be negative,” the Deutsche Bank Analysts added.
Natural Rubber Prices have reached a new high at $1.70/kg and resulting tyre prices increases could be on their way. The cost of natural rubber has increased 45 per cent since January and 30 per cent when compared with the average price in 2004. This price surge, reportedly +30 per cent in two months, will impact the tyre manufacturer’s balance sheets in four to six months, Deutsche Bank analysts predict. The analysts also suggested: “After two sets of price increases, both in 2005 and in 2006, we expect the industry to remain disciplined and would expect a further price increase in 2006.”
US tyre shipments rose 4.2 per cent year-on-year in June, possibly boosted by pre-buying ahead of June price increases. Deutsche Bank analysts, who also calculated the figures, found that shipments for the full quarter were in line with expectations, rising 1.5 per cent compared with the second quarter of 2004. As a result of the strike early in the second quarter, the analysts expect Cooper Tire to “underperform the industry during the quarter.”
In contrast the report suggests Goodyear and other tyre manufacturers outperformed the market in the same period. “We continue to expect an inflection point for Cooper Tire in the third and fourth quarters, as production and industry pricing levels continue to rise,” said the analysts.
In the last few days Michelin’s share price has fallen four per cent, prompting analysts to ask questions about the manufacturer’s cash flow. Deutsche Bank analysts discount suggestions that natural rubber price increases are the main reason for the drop in share price. Instead they agree with bearish predictions that despite 9.2 per cent operating profit margin in 2005, the company isn’t generating enough cash flow. However, future labour cost savings coupled with lower capital expenditure will boost free cash flow generation in the next 2-3 years, the analysts believe.
Michelin is preparing to close a small truck tyre plant in France, Deutsche Bank analysts have reported. According to the analysts, the company will close its Poitiers plant (which employs some 500 people) and transfer truck tyre production to Tours. The larger Tours plant has 2000 employees.
”Since we expect 30 per cent of the group’s Western European workforce (or 17,000 people) to be retired by the next five years, this will underline a significant reorganisation of the group’s industrial organisation, involving their 31 European plants,” the analysts commented. 26 of Michelin’s European plants can be found in Western Europe, while the remaining five are in Central Europe.
US tyre demand came in strong during May, Deutsche Bank analysts have reported. As a result the major manufacturers are reported to have averaged a 3.6 per cent year-over-year increase. However, although demand appears to have recovered from the 3.8 per cent drop it suffered in April, the analysts are cautious about reading too much in the figures.
Executives at Michelin’s AGM have reiterated their target of achieving at least the same operating profit margin in 2005 as they did in 2004, despite lower volumes in the first half of this year. At the same time the company appointed Michel Rollier as new managing partner.
Deutsche Bank analysts have confirmed what industry insiders were already thinking, there is a shortage of earthmover tyres. However, this provides numerous opportunities for the right parties. Operating profit margins are high, reaching double digit levels. Despite this the sector is relatively small with annual sales worth $5.5 billion, or 7 per cent of the $80 billion world market. According to the analysts, the earthmover sector is dominated by the “big three.” Bridgestone is said to hold a 60 per cent market share, followed by Michelin with 30 per cent and Goodyear with 10 per cent.
Following its acquisition by British private equity firm, CVC Capital Partners, Kwik-Fit has put itself up for sale in a move that could raise as much as £800 million. CVC is reported to have sent information on the company to “a string of prospective buyers.” Although the names of the these companies have not been officially released, Reuters speculated that the list would include all the leading buyout firms including Cinven, Kohlberg Kravis Roberts, BC Partners, Permira and J P Morgan Partners. The sale is expected to be completed by the end of the summer.
Michelin has released fist quarter results that show the company’s net sales have “stabilised” in value terms. The weakening dollar is said to have contributed to the 0.2 per cent drop in sales to 3.61 billion euros against the same period last year.
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