US replacement tyre shipments rose one per cent in March, Deutsche Bank analysts have reported. According to the report, this number is seen as relatively strong in the context of the seven per cent year on year increase experienced in February. The analysts predict a 2 – 3 per cent increase for the quarter.
Michelin is likely to embark on a major restructuring programme in the coming years. The news follows a meeting between Deutsche Bank analysts and Michelin. The fact that 24,000 people will be retired in the next five years (17,000 in Western Europe or 31 per cent of the workforce and 7,000 in North America or 33 per cent of the workforce) is said to allow for higher productivity gains and transfer of production to low cost countries.
Analysts have predicted that Michelin’s first half operating profit could match last year. They added that a three or four per cent fall in volume should be offset by the effects of a strong price/mix effect of plus four or five per cent. The Deutsche Bank report states that the analysts expect first half operating profits to be 50 million euros higher than the consensus of 700 million or 9.3 per cent of margin. This translates into an earnings per share estimate of 5.5 euros for 2005 earnings and 6.5 euros for 2006 earnings, against a consensus of five and six euros respectively.
Goodyear is “more or less on track…to come in around breakeven” during the first quarter of 2005, Deutsche Bank analysts have reported. The analysts went on to say that they foresee a modest profit ($0.05 per share) in the second quarter, while maintaining their $10 target sell rating. The market watchers suggest that Goodyear’s new $3.2 billion credit facility ($2 billion of which has already been used) has “bought the company enough time to turn its tyre business around. However, there was caution. The analysts warned that competition from America and Eastern Europe present challenges for the company, as do declining military revenues and lower auto production levels. In addition, competitors appear to be outpacing Goodyear’s efforts to shift to low cost markets, they concluded.
(Akron/Tire Review) Goodyear Tire & Rubber Co has announced that is proposes to add a $300 million third-lien secured term loan facility. The financing, due in March 2011, is in addition to new credit facilities of about $3.35 billion maturing in 2010. The $300 million financing, which is being arranged by JPMorgan and Deutsche Bank Securities, will be secured equally with existing secured bonds due in 2011 and is expected to close in April, the company said.
Although Goodyear’s earnings were roughly as expected Goodyear’s recent positive results contained some surprises, Deutsche Bank analysts have reported. Despite 4 per cent growth in unit sales and an 8 per cent increase in average transaction prices, Goodyear was only marginally profitable in its North American tyre division in the fourth quarter, say the analysts. “We have doubts about Goodyear Tires’ ability to cut costs, increase volume, or improve variable margins in this region. In fact, there was evidence that cost cutting is losing steam,” they said adding: “Our model suggests that first half EPS will be close to breakeven. Improvement in the second half requires significant ramp up of cost savings.”
A group led by Pirelli RE has bought the La Rinascente retail chain in a deal worth 888 million euros (£619 million), numerous business sources have reported. Eurofind, the chain’s previous owner, said the Pirelli led group beat several rival bidders, including French department store chain Galeries Lafayette. The Pirelli RE-led group includes Deutsche Bank Real Estate, private equity fund Investitori Associati, and Milan’s Borletti family, which owned the chain until selling it to the Agnelli family in the 1970s. Rinascente, which owns its namesake department-store network as well as UPIM, a lower-priced chain, reportedly had net profit of around 9 million euros and EBITDA of 68 million euros from 925 million euros of revenue last year.
Western European car registrations for February could be down by as much as 2.7 per cent, according to a Deutsche Bank report. Preliminary figures from Polk Marketing Systems suggest a decline of 3.7 per cent year-on-year (-1.3 per cent year-to-date). The report singles out Renault (-12 per cent) and Fiat (-13 per cent) as having particularly bad months, while VW brand (-8 per cent) stayed inline with the average and Mercedes (-15 per cent) failed to improve from a weak January. On a brighter note, the analysts point new model releases for the from BMW brand (+36 per cent) and Porsche (+15 per cent) as examples of European names that are doing well.
Michelin will not buy the whole Trenco Egyptian conglomerate, as some new sources had reported. According to an article in French newspaper, Les Echos, Michelin was likely to buy the conglomerate for $10 million, despite its daily losses of $40,000 and debts of $200 million. Deutsche Bank analysts contacted Michelin and report that the company denied being interested in the whole conglomerate, but only in the Nisr tyre brand. Nisr is much smaller in comparison, producing only 30,000 tyres each year. Egypt is the 5th largest North African market with an annual volume of 3 million passenger tyres and 700,000 truck tyres. This is an attractive market for Michelin which aims to expand its production capacity in this region, the analysts believe.
Continental is currently considering plans to build a new tyre factory in Europe, according to Dr Alan Hippe, chief financial officer. If demands continue to be as strong as they are today, it would be the next logical step, said Dr Hippe speaking at the Geneva Motor Show. Such a new facility would have to be built in Eastern Europe, possibly in Lithuania, writes the Berliner Morgenpost. Recently Continental invested a considerable amount of money in Eastern Europe in order to cut production costs.
Deutsche Bank analysts reported that Continental’s presentation was both “bullish“ and “striking.” In his presentation, Dr Hippe explained that Continental had revised its ESP penetration expectations for the US market to about 18 per cent in 2006, lifting the volume target to 1 million units. The CFO also suggested that the German manufacturer could be in a net cash position as early as the end of 2005. According to the analysts, “the bottom line is the growth and free cash story continues (at least 600-700 million euros per year).”
Private equity group CVC Capital Partners, the owner of Kwik Fit, has appointed Deutsche Bank to advise on a possible sale or floatation of the retail business. CVC said it and the German bank would work together on determining the best course for Kwik-Fit, according to a BBC report. Kwik-Fit is expected to be valued at more than £700 million with some estimates reaching £1 billion. Analysts report the company has strong cash flows and would make an attractive takeover target.
“Deutsche and CVC are going to evaluate the strategic options for Kwik-Fit, but no decision has been taken yet in terms of whether it will be a trade sale or an IPO (initial public offering) or in terms of timing,” said a spokesman for CVC. Famous in the UK for its “You can’t get better than a Kwik-Fit fitter” advertising slogan, Kwik-Fit is Europe’s largest independent auto parts, repair and replacement specialist. It has some 2,300 outlets including its mainland Europe subsidiaries – Speedy in France and Pit Stop in Germany.
Analysts were not surprised by Bridgestone’s recently posted operating profit increase of 7.9 per cent, according to a Deutsche Bank report. At the same time as posting its 2004 full year results, the company predicted a downturn in operating profit of 14 per cent in 2005. The analysts’ verdict? Cautious as usual.
“The numbers did not surprise, as usual beating the company targets. They were driven by higher volumes in Europe and the US and an improved product mix,” the report says. The Deutsche Bank representatives continued by commenting that Bridgestone’s projected full year profit dip has accounted for higher raw material costs, but not the effect of passing these on to costumers. According to the analysts Bridgestone’s conservative estimates reflect a desire to reinforce its negotiating position with synthetic rubber and chemical material suppliers; underscore how tough the earnings environment is in order to make a stronger case for its own price increases; and gives extra leverage for unresolved labour contract issues with North American unions.
Kwik-Fit could be worth up to £1 billion if it were auctioned in the coming months, according to media reports. CVC Capital, which acquired the business from Ford in 2002, is thought to be ready to appoint financial advisers. The Financial Times reports that Citigroup, Deutsche Bank, Goldman Sachs, Merrill Lynch and Morgan Stanley are all vying for the mandate.
Sumitomo Rubber has released strong 2004 results, at the same time as announcing both the appointment of Tetsuji Mino as president.
Net sales were recorded at 3.41 billion euros. Operating income rested at 329.9 million euros, of which 238.4 million euros (equating to 72.3 per cent) came from tyres. This showed a decrease compared to 2003 where 82.6 per cent of operating income came from tyres. Net income was 138.9 million euros from 94.9 million in 2003 and net sales were 2.59 billion euros, or 76 per cent of overall sales.
Deutsche Bank analysts are expecting the price of Michelin shares to increase by over 20 per cent from their current value of 53 euros per share to 65 euros. The estimate follows Michelin’s recent financial activities such as its investment in Poland, its Q4 results and its announcement that it is disposing of its wheel business. These signals “show the management commitment to turnaround this business unit,” wrote Deutsche Bank.
“In our view this shows a great consistency with the management strategy and reinforces our confidence in the capability of Michelin to reach their mid-cycle target of 10 per cent as early as 2006,” it estimated. This translates into 6.5 euros EPS.
However a risk lies in further strong increases in raw material prices which Deutsche Bank fears will not be able to be passed on to the customer.
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