Profits Expected To Come Under Pressure In Second Half
Volkswagen had many bullish comments to make about its future, but it was the negative content that caught investors’ attention.
Sales and operating profits had “considerably” outperformed so far this year, as the U.S. and China did well. 2009’s sales of 6.3 million vehicles and operating profit of €1.9 billion would be “significantly” higher this year. The weakening euro also helped profitability and sales in the U.S. and Britain.
But investors focussed in VW’s remarks about the uncertainty expected in second half of this year, as competition intensified and competition remained fierce.
“VW maintained a cautious view on the second half, citing increased competition and more challenging markets post scrappage schemes. As raw materials are also set to rise in 2011, we maintain our view that profit momentum will likely decelerate throughout the coming quarters,” said Deutsche Bank analyst Gaetan Toulemonde.
Max Warburton of Bernstein Research is also a VW sceptic.
“VW is under exposed to the U.S. relative to BMW and Mercedes and while a better dollar rate will reduce its losses there, it is not a game changer. VW remains primarily a play of Continental European mainstream exposure, particularly German – which looks unattractive at the present time. Its Chinese sales are nearly all locally produced so it is not getting the same dollar linked transactional boost from exports to China of the sort powering BMW and Mercedes.”
“We continue to think many over-estimate the long-run earnings power of VW, although currency remains critical to its margins and rates are improving,” Warburton said.
Neil Winton – July 1, 2010
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