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VW Profits Grow; New Production Methods Promise Even More

The Only Wrinkle; Why Is Share Price So Low?

Volkswagen defied financial turmoil in Europe by improving its profits, and investors think VW’s recent investments in new production techniques will push long-term profit margins to even greater heights.

VW’s operating profit rose seven per cent in the first half to €6.5 billion compared with the same period last year. Sales reached €95 billion. The VW brand profit margin was 4.1 per cent.

VW retained its 2012 target of matching last year’s operating profit of €11.3 billion.

Commerzbank analyst Daniel Schwarz said VW’s performance was less spectacular than recently, but the new so-called MQB platform promises much.

“With the roll-out of MQB – Audi A3 launched, Golf follows in the second half – the volume of cars based on common modules increases from 2.8 million to 5.8 million by 2020,” Schwarz said.

Scenarios
Given VW’s remarkable success, analysts point to the alarming, neutral view of the stock market. The VW stock price is no higher than a year ago, and still values the company at a low, five-times earnings multiple of a much less successful company. This suggests to analysts that investors are worried about potential and serious future dangers, like the sudden demise of the China market, VW’s eventual contagion by the European debacle, or a return to the Deutschmark.

Bernstein Research’s Max Warburton, after pointing this out, feels fears are overdone.

“”But assuming none of those fears materialise, this company looks potentially unstoppable. There’s little evidence in this set of numbers that VW is in any real difficulty at all,” he said.


Neil Winton – August 1, 2012

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