VW Reports Strong Profit But Outlook Leaves Investors Cold.
“We had hoped management would be more ambitious”
Volkswagen reported strong profits for 2017 but investors were downbeat about the company’s outlook for this year, as they searched for hints that assets like trucks might be floated off, which might signal the long-awaited corporate governance revolution might be on the horizon.
In 2017, operating profit rose 16.5 per cent to €17 billion before so-called special items, as margins advanced to 7.4 per cent from 6.7 per cent. The profit target was 7.6 per cent, and VW ‘s target for 2018 is between 6.5 and 7.5 per cent.
VW said profits benefitted from the success of the Tiguan SUV and Arteon fastback, and more savings from its modular engineering plans.
Investment researcher Evercore ISI described the 2017 results as disappointing and the 2018 targets undemanding, and was unhappy about the silence on the possible truck flotation.
“VW’s supervisory board also hasn’t made tangible progress on the structure of the group – i.e. Trucks IPO (initial public offering) – which we find underwhelming. At the mid-point of the guide VW appears to be targeting lower profitability in 2018 versus the 7.4 per cent delivered last year, which is also disappointing. We had hoped management would be more ambitious and that its efficiency programme would yield bottom line results in 2018,” Evercore ISI analyst Arndt Ellinghorst said.
Citi Research declared the 2017 results mixed, but said it was difficult to draw too many conclusions from this “headline” news. The full report will be published on March 13.
Citi Research said it was impressive that after paying out about €16 billion last year for dieselgate related issues VW finished the year with an industrial cash balance just €5 billion lower than a year ago.
“The slow and steady recovery story remains intact to our minds and we stay Buyers,” said Citi Research analyst Michael Tyndall.
Bernstein Research had a similar take.
“The figures weren’t great but we believe are sufficient to reassure the market that the company is on track to grow earnings and cash flow in 2018,” Bernstein Research analyst Max Warburton said.
Nord LB bank was impressed though.
“We expect the Volkswagen Group to increase its sales figures by up to 5 per cent to more than 11 million vehicles in 2018. With regard to the operational strength of the Group, we confirm both the judgement ‘Buy’ and the price target of €189 for Volkswagen preference shares,” Nord LB said in a report.
At the end of February VW shares were close to €165.
VW said it had now put aside €25.8 billion to cover dieselgate fines, compensation and vehicle changes and nearly €20 billion had been paid.