Volkswagen Results Delay Prudent Not Ominous

Volkswagen Results Delay Prudent Not Ominous.

“A delay that brings some clarity is worth the wait”

Rather than heralding more bad news, Volkswagen’s decision to postpone its financial results was thought more likely to eventually provide more reliable information about the dieselgate scandal.

Citi Research analyst Michael Tyndall said it was worth waiting a bit longer if the delay bought some clarity, not least because investors have been so uncertain about VW’s future the stock had become impossible to invest in.

“A delay that brings some clarity is worth the wait. What VW investors need more than anything else is visibility on the potential costs associated with the ongoing emissions scandal,” Tyndall said.

VW shareholders have been demoralized since news broke September 18 that the company cheated to defeat U.S. environmental rules which limited noxious emissions from diesel engines. This concerned around 500,000 diesel engines in the U.S. The scandal then moved on to the rest of the world with 11 million engines involved in cheating not only diesel emissions, but also fuel economy claims. Last month the U.S. sued Volkswagen for up to $48 billion for allegedly violating environmental laws. Estimates of the final cost soared past the previous record for environmental penalties held by BP with $53.8 billion for the Deepwater Horizon oil spill.

Earlier Friday, VW said it delayed its financial results announcement from March 10, and its annual meeting on April 21, but didn’t say when they would be rescheduled. By law VW must publish its results by April 30. VW also said its 2015 operating results before special items would be at the level achieved the previous year.

Probe results in April
VW still plans to publish the results of an investigation in the origins of the dieselgate scandal in the second half of April.

Arndt Ellinghorst, analyst with investment researcher Evercore ISI was also reassured by the news and took comfort from VW’s statement that operating earnings would be steady.

“We view this as incrementally positive and confirmation that underlying operations have not seen a notable deterioration as a result of the diesel scandal and accompanying negative headlines,” Ellinghorst said.

“To us, the decision to postpone the meeting seems prudent. Going ahead with the company not yet in a position to answer all the questions from the investment community would have provided little incremental value, in our view,” he said.

Meanwhile in January VW brand sales in Germany fell a further eight per cent, with the overall group – including Audi, Porsche, SEAT and Skoda – losing two percentage points of market share. Competitors like Ford Europe and GM Europe’s Opel/Vauxhall sales rose 19 per cent and 22 per cent. In the U.S., VW’s sales fell 15 per cent in the month.

Citi Research’s Tyndall said he still believes the massive hit to VW;s market capitalization is more than the total cost of the scandal, so there is room for the share price to rally.

VW shares have plummeted from €169.05 on September 18, a loss of around 30 per cent. Citi Research has a target price of €160, Evercore ISI’s target is €200.