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Mercedes Profits Strong, But Investors Wary Of Spending Need

Mercedes Profits Strong, But Investors Wary Of Spending Need.

“Mercedes margins to stay high, but so too will investments”

Mercedes paid the price for predicting slowing sales momentum for 2017, after climbing so strongly last year it was able to claim the title of global premium leader for the first time in more than 10 years.

Investors were also worried about the huge cost of investments for the future in connected, electric and autonomous cars.

In the 4th quarter of 2016, Mercedes cars’ profit zoomed 22 per cent to €2.63 billion, and parent company Daimler said this year earnings will rise “significantly”, but sales growth will slow. The stock market punished the company with a 3 per cent fall in the shares, as analysts reckoned it had done so well, the only way was down, or at least offered limited hope for improvement.

“(Mercedes) margins to stay high, but so too will investments,” Citi Research said in a report, adding that the stock market has recently been pricing in what it considers expensive commitments in the future.

“We can see the merits in Daimler’s strategy even if it does put a cap on margins in the near term. Investing when profits are strongest should go some way to providing margin stability in the longer term,” Citi Research said, but dropped its investor recommendation to Neutral.

According to the Wall Street Journal’s Heard on the Street columnist Stephen Wilmot Daimler’s capital spending hit €13.5 billion last year, which is 8.8 per cent of sales and 16 per cent ahead of 2015. This year spending is set to rise 13 per cent to €15.2 billion and stay the same in 2018.

“Daimler’s stock (price), like those of other traditional car makers, is cheap for a good reason. Whatever happens to car demand in the coming years, growth will come at the price of massive investment in new technology,” Wilmot said.

Meanwhile, Daimler trucks chief Wolfgang Bernhard, once seen as a possible successor to CEO Dieter Zetsche, resigned from the company. Daimler recently extended Zetsche’s contract by three years, which was seen as denying Bernhard a shot at the job because he will be close to 60 then.

According to investment researcher Evercore ISI, immediate rumours concerning Bernhard’s future centred on a possible return to Volkswagen.

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