VW Profit Will Dip In 2015, But Rally Next Year.
“The bull case on VW is persuasive – MQB should hit stride in 2016”
Volkswagen’s current profit performance and trouble at the helm might be cause for concern, but investors and experts expect a turnaround soon, fired by new products and cost cutting.
According to Fitch Ratings, Volkswagen profits will slip slightly in 2015 from 2014’s 6.3 per cent but rebound to about 6.5 per cent in 2016, helped by new (MQB) production methods, a strengthening product portfolio and cost savings.
Barclays Equity Research agrees that profit for 2015 will be lower, but has high hopes for 2016 and 2017 as long-troubled North America also starts to improve.
“The bull case on VW is persuasive – MQB should hit stride in 2016. Future tracks (cost savings) is set to deliver €5 billion of savings by 2017, a raft of new SUVs and more localized product should see the VW brand turnaround in North America beyond 2017 and there is also a substantial FX (foreign exchange) tailwind coming as hedging rolls in the next few years,” said Barclays analyst Michael Tyndal.
“We don’t see material earnings progression in 2015, but 2016 and 2017 look compelling,” he said.
Tyndal said MQB should underpin about three million vehicles in 2016 and delver about €1.5 billion in cost savings.
Fitch Ratings doesn’t expect much in the way of strategy changes after the demise of long-term chairman Ferdinand Piech, and also took this to mean financially dangerous mergers and acquisitions would be less likely.
Bernd Osterloh, head of VW’s works council, said last week that before the appointment of a replacement for Piech, VW should design a new structure, although he didn’t elaborate.
Fitch, in a report, said despite its prediction of profit progress, VW has a weak management structure compared with its competitors because of its ownership.
“Volkswagen’s corporate governance is weaker than that of its main peers, although this does not have a direct and immediate impact the (credit) ratings. Key areas of weakness include the 20 per cent blocking minority (held by Lower Saxony) in voting resolutions, conflicts of interest on the part of some board members including between Porsche and Volkswagen, and lack of independence and diversity at the supervisory board level,” Fitch said.