Even after the spin-off of drive technology into Vitesco, the automotive supplier and tire manufacturer Continental remains largely dependent on the automotive industry. The company is currently struggling hard again as global auto production is weakening as a result of semiconductor shortages. What boss Nikolai Setzer plans to do, what analysts are saying before the final figures for the third quarter this Wednesday (November 10th) and how the share is doing.
THAT’S GOING ON AT CONTI:
In October, Conti had to continue its auto parts business for the second time this year lower the goalsAccording to preliminary figures, the division again posted an operating loss in the third quarter after it had already been in the red in the previous quarter.
Conti now no longer expects that the weak previous year, which was hit hard by corona lockdowns, will noticeably be exceeded in global production of cars and light commercial vehicles in 2021. In the worst case, management even expects a further decline of one percent – and even in the better scenario it should only be an increase of at most one percent compared to 2020. In the automotive supply division, Conti depends on the actual production of the car manufacturer. But the initial equipment with tires is also affected.
Conti is currently in a bind. In view of the situation, the car manufacturers are currently still earning splendidly, Daimler and BMW even increased their profits in the third quarter. Manufacturers can benefit from the current high car prices for new and used cars – but the lack of parts calls for parts due to stagnant production is having an impact on the suppliers. Worse still: On the cost side, the burden on parts, freight and raw materials is increasing. In the tire and plastics division, CFO Wolfgang Schäfer put the headwinds in raw material prices this year at over half a billion euros.
For the entire group without Vitesco, Setzer and Schäfer are still assuming sales of 32.5 to 33.5 billion euros. Before interest, taxes and special effects, only 5.2 to 5.6 percent of the proceeds are likely to remain as operating profit. It will be interesting to see whether Conti is still expecting the first net profit since 2018 for the year as a whole. After the first six months, Conti had made a profit of almost one billion euros.
Like other suppliers, Conti is currently undergoing a profound restructuring that is likely to affect tens of thousands of jobs by the end of the decade. As initiated by his predecessor Elmar Degenhart, Setzer wants to reduce gross annual costs by 850 million euros. Many supplier parts, such as mechanical speedometers or gear shifts, will no longer play a role in a largely electrified environment. Conti is therefore increasingly relying on sensors, networking and software in cars and commercial vehicles.
WHAT ANALYSTS SAY:
The lowered annual forecast includes a very cautious view of the fourth quarter, wrote Warburg research analyst Marc-Rene Tonn recently. It reflects the continued volatility of the market. For LBBW expert Frank Biller a disappointing outlook – even if the preliminary figures for the third quarter turned out to be a little better than feared.
Berenberg specialist Romain Gourvil attributed the better-than-expected results from July to September to one-off effects and non-core businesses. The spin-off from Vitesco brought in around 60 million euros in accounting terms, and the new area with contract manufacturing for Vitesco also performed significantly better than experts had estimated. According to the expert, the new expectations for the inflow of free financial resources (free cash flow) are particularly disappointing.
The analysts recorded by dpa-AFX since the preliminary figures and the lowering of the forecast are currently not negative towards the share – but the majority advises to wait and see. Five out of nine experts recommend holding the papers and four recommend buying them. The average target price is over 113 euros and thus well above the current level of around 100 euros.
WHAT DOES THE SHARE DO:
The spin-off of drive technology, which has been planned for several years and completed in September, has not yet been a price driver for Conti shareholders. The last closing price of the “old” Conti was a good 113 euros. For five Conti shares, the investors received a Vitesco paper (price 48.25 euros) in their custody account. The arithmetical value of both groups for individual investors is currently slightly below the last joint share price in September.
So far, Conti investors have had an eventful year. Initially, the old listing went up to an annual high of almost 133 euros, before the increasing problems with the chip supply put a damper on the recovery trend. Since the Vitesco spin-off in September, the “new” Conti share has recovered somewhat, while Vitesco shareholders have had to accept price losses.
In addition to combustion technology, Vitesco also bundles the electric drive business. However, both companies will continue to manufacture parts for each other for a while. It takes time for the entanglements to be completely loosened. Continental is currently worth around 20 billion euros on the stock exchange, Vitesco comes to a little less than 2 billion euros.
In addition to the unlisted German supplier giants Bosch and ZF, Conti also has the Japanese company Denso (the equivalent of around 50 billion euros on the stock market), the Irish company Aptiv, which is listed in the USA (40 billion euros) and the French company Valeo (6 billion euros) ) and Faurecia (6 billion euros) in the competition. On the tire side, Michelin (24 billion euros) and Goodyear (6 billion euros) are the main rivals. (dpa-AFX / gem)
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