Continental’s EBIT Could Improve

Following Manfred Wennemer’s recent statement that he was expecting a lower pre-tax profit margin in 2007, Deutsche Bank analysts have suggested the Continental CEO’s words were “very bearish.” Wennemer’s assessment is based on the cost of integrating Motorola’s car electronic unit (3 per cent EBIT margin versus 11 per cent for Continental AG) into the group.

The analysts contend that the group should in fact benefit from: a positive volume effect (up between 4 and 5 per cent); a positive raw material price impact of around 100 million euros; and the progressive recovery of the US passenger car tyre division.

However Deutsche Bank’s positive projections are balanced by concerns that the “current high EBIT margin has reached a limit for a company dealing with original equipment manufacturers which are barely profitable (62 per cent of revenues are OEM related).