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Strong Mercedes Profits To Continue In 2016

Strong Mercedes Profits To Continue In 2016.

Launch Of New E-Class Will Underwrite Earnings Performance.

“We expect Mercedes to deliver a 10.1 per cent operating margin in 2016”

Mercedes-Benz’s impressive portfolio of new cars and SUVs is expected to spur more strong profits in 2016, although analysts worry that its turnaround might be derailed by global economic turbulence.

“Daimler (Mercedes’ parent company) is our top pick in the E.U. autos sector and has compelling value unless an EU recession is imminent, or the euro strengthens (against the dollar),” said Berenberg Bank analyst Adam Hull.

Daimler, which makes Mercedes luxury cars as well as trucks and buses, reported earnings before interest and tax (EBIT) rose 36 per cent in 2015 to €13.81 billion compared with 2014. This was slightly above expert expectations.

Weirdly, Daimler shares dived on the Frankfurt stock exchange after it expressed caution about 2016’s prospects, but some analysts reckoned this was because the company’s conservative outlook had been take too literally.

Daimler said for 2016 sales and EBIT growth was likely to be slower than last year’s.

Commerzbank analyst Sascha Gommel said Daimler’s forecast implied 2016 sales of between €149.5 and €156.9 billion and EBIT of between €13.8 billion and €15.2 billion with a profit margin of between 9.2 and 9.7 per cent.

Good momentum
“The company should (also) show good earnings momentum in 2016. We believe the guidance has been misunderstood and we expect the shares to recover,” Gommel said in a report.

Daimler said global sales of cars and light vehicles for the industry as a whole are likely to grow between three and four per cent in 2016. The strongest growth is expected in Asia, especially China, while growth in Western Europe and the U.S. is likely to be significantly lower than the substantial growth of recent years

“We look positively into the year in China. The market forecast is for eight per cent growth and we believe we can achieve market share gains,” said Daimler CEO Dieter Zetsche, quoted by Reuters.

Daimler is the first of the major German car makers to report earnings for 2015 and comment on prospects for 2016.

Barclays Equity Research analyst Kristina Church, commenting after stock markets around the world took a dive, said it is too early to switch to a recession scenario for companies like Mercedes.

“There are global concerns, as high-lighted by financial markets, but we still see the glass as half full and believe it is too early to adopt a recession scenario on Daimler’s estimates, although there is no room for complacency. If sentiment were to worsen, we believe the entire sector would suffer with little discrimination at least at the beginning,” Church said.

Renault Nissan
“Mercedes is currently delivering best in class margins in the large-volume premium segment. There are still plenty of earnings drivers such as the new E-Class, the ongoing sharing strategy with Renault/Nissan and the new engine platform OM-654 that will introduce great flexibility within 4 and 6-cylinder engine families. We expect Mercedes to deliver a 10.1 per cent operating margin in 2016,” Church said.

Berenberg Bank’s Hull liked Mercedes’ strong position in autonomous driving, alternative drive-trains like electric cars and plug-in hybrids and digitalisation.

“The initial benefit of the two new medium to large SUVs will soon fully feed through. The imminent launch of the E-Class will also support,” Hull said.

“By 2017, Mercedes Cars will have largely fixed its main problems of

  1. a) The lack of sharing among mid-sized cars and SUVs
  2. b) Sever underperformance versus peers in China, and
  3. c) Large losses in small cars,” Hull said.
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