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China, Porsche, Efficiency Should Boost VW Profit

€3 Billion Expected From Porsche, With €1 Billion From Macan In 2014.

VW Likely To Raise 2013 Forecast.

Volkswagen’s profitability looks set to accelerate over the next two to three years, thanks to its luxury sports car manufacturer Porsche, investment in China, and benefits from its huge spending on making production more efficient.

That’s the reaction from investment bankers after VW announced its financial results for the second quarter late last month.

In the second quarter, VW’s operating profit rose to €3.44 billion from €3.38 billion in the same period of 2012. VW reiterated its forecast for the whole year of unchanged operating profit of €11.5 billion.

Berenberg Bank of Germany expects VW to raise its profit forecast for 2013 when it reports third quarter results. This bank expects €12.3 billion this year, boosted by improvements in the VW brand operating profit margin to 3.0 per cent in 2013 from 2.7 per cent in 2012. Next year this margin should rise to 3.5 per cent, then 4.0 per cent in 2015 and 4.4 per cent in 2016.

According to Berenberg analyst Adam Hull, VW dividends from its business in China are accelerating, likely reaching €2.6 billion in 2013 a couple of years ahead of schedule.

Citi Research said Porsche, acquired by VW in August 2012, is already generating 20 per cent of the company’s operating profit.

“As it expands its product offering like the new Macan (compact SUV) this is likely to be a key driver of the group’s growth. The VW brand was also impressively resilient despite weakness in Europe and it too is set to begin to reap more benefits into 2014 and beyond from the fuller implementation of MQB,” said Citi Research analyst Philip Watkins.

Cutting costs
“MQB” refers to the expensive investment in new modular production technology which is gradually cutting costs across the VW empire, including the premium Audi brand.

Morgan Stanley expects Porsche to contribute €3 billion of EBIT (earnings before interest and tax) in 2014, with the Macan accounting for €1 billion.

Berenberg’s Hull said MQB usage is currently under one million cars a year, but this will rise to around three million in 2015.

Citi Research’s Watkins raised his operating profit prediction for 2013 to €11.82 billion, thanks to improved Porsche and VW brand contributions.

Daniel Schwarz of Commerzbank reckons 2014 profit will be boosted by VW’s U.S. performance, as well as MQB and Porsche, and raised his profit forecast for 2014 to €14.6 billion.

As well as predicting a glowing future for VW, Berenberg Bank’s Hull also believes the weak West European car market in general and Germany, the region’s biggest market, in particular, are about to rally.

“We forecast German (annual growth) of four per cent in 2014 through 2016, and for the European car market to rise 2.5 to 3.0 per cent in 2014, 2015 and 2016,” Hull said.

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