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Berenberg Bank, UBS Like Mercedes Prospects

Berenberg Bank, UBS Like Mercedes Prospects.

New Models Will Boost Long-Term Profit Margin.

Despite worries about China, Mercedes-Benz parent Daimler has won a powerful endorsement from a couple of investment banks.

Berenberg Bank raised its profit margin forecast for 2015 through 2017, saying its previous expectation of 10 per cent might be too low given the new Mercedes models expected, cost cutting and foreign exchange gains.

UBS, despite nerves about the future of China, believed that Daimler’s share price has fallen so far during the recent panic it must have great long-term potential to recover, not least because its exposure to China is much less than most Germans at between 15 and 20 per cent of profits. Mercedes has much catching up to do to regain its “natural” share of German premium demand currently 27 per cent compared with its global share of between 32 and 33 per cent.

Berenberg Bank expects the China market to fall one per cent in the second half of 2015, then rise two and five per cent in 2016 and 2017.

It notes four reasons for Mercedes optimism –

  • The profit holes of Smart and small cars are being plugged.
  • Mid-sized cars and SUV profits will be boosted by new models and the new engineering platform.
  • China sales are up strongly and all locally built models are new or replaced between mid-2014 and mid-2016.
  • Foreign exchange gains will boost EBIT (earnings before interest and tax) by around €2 billion between 2016 and 2018.

Berenberg analyst Adam Hull likes the fact that Mercedes is launching three new large high margin SUVs by the end of 2015, significant face lifts for the ML and GL, the C-class is selling very well and the boxy GLK is being replaced by the GLC.

“Mercedes Cars’ sustainable margin is well above BMW’s so Mercedes deserves a premium (stock market) valuation to BMW,” Hull said.

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