Analysts Reduce Pirelli Earnings Estimate, But RE Spin-Off Would Change Their Minds

Morgan Stanley analysts have decreased the bank’s 2010/2011 Pirelli earnings per share estimates by 20 – 25 euro cents, following the company’s fourth quarter results. This means the analysts have reduced their estimates from 3.39 euros to 3.18 euros and 4.53 euros to 4.28 euros for 2010 and 2011 respectively. They also commented that bank’s tyre EBIT estimates are now in line with the market consensus.

However, while the latest investors note (published on 16 March) was direct in assessment that earnings would be reduced, the analysts also outlined potential events that would make them change their mind. At the top of their wish list are changes in group organization, which Pirelli’s management has publicly announced that is seeking: “We applaud the efforts Pirelli is taking to focus on the core tyre business and believe the market will continue to reward the company for this, as it has done in the months.”

On this note Morgan Stanley’s analysts stated their belief that Pirelli is serious about the spin-off of its Real Estate business, against the perceived prevailing market view that it is not likely as the company has been this for years: “Yes, we believe management has undertaken a serious commitment and will do all it can to avoid Pirelli being a hybrid conglomerate for much longer. In a number of formal announcements (media, official press releases, conference calls) senior management has publicly committed to proceed…Although we do not have an insight into the state of the discussions between Pirelli management and lending banks, we fail to identify previous occasions where management had taken such a public pledge.”

A further renewal of the car incentive scheme in Brazil, the sustained “pricing power” of tyre companies in 2010 and good first quarter 2010 results (which are due to be released on 6 May 2010) were also listed as potential catalysts.

Related News:

• Pirelli – 20% More Capacity by end of 2011

• Conti’s Tyre Plant the Key to Brazilian Market

• Despite Reduced Sales, Pirelli Tyre Records Stronger Profit in 2009

• Pirelli Tyre Revenues Expected to Increase in Fourth Quarter