Analysts praise Nokia’s ‘very strong’ fourth quarter, predict 30% capacity increase
Financial analysts lauded Nokian’s “very strong” fourth quarter results, with Morgan Stanley predicting the news will raise the share price, while Deutsche Bank increased its price target from 37 to 38 euros. Strong demand is also expected to lead to a significant increase in unit output during 2011.
The analysts concurred that Nokian’s pre-released sales and operating income headline figures were in line with the actual results – making the focus on the company’s net debt and continuing outlook. And these, in Morgan Stanley analyst Edoardo Spina’s words are both “great news.” Net debt totalled only 1 million euros, implying cash generation of 383 million euros, according to the analysts.
“The outlook was also very reassuring and confident, albeit somewhat vague on 2011 sales and profit guidance, as always,” Spina commented. However despite the vague wording, there are said to be signs that landscape looks good for Nokian. With stock inventories remaining relatively low across the tyre industry, Nokian’s order book has reportedly reached record high levels, with demand expected to exceed supplies at times.
New product lines, price increases on the way.
As a result, Morgan Stanley’s report predicted Nokian will increase its “production capacity” (which probably refers to output rather than capital expenditure in new manufacturing lines) by 30 per cent in 2011. At the same time raw materials prices are increasing 25 – 28 per cent year-on-year compared with a targeted increase in average selling prices of 7 per cent. “Management is targeting strong sales growth and improved operating profit versus 2010,” Morgan Stanley observed. Deutsche analysts concurred: “We believe average selling price growth is likely to offset higher raw material costs, driven by improving sales mix and pricing power.”
In Deutsche Bank’s view Nokian’s recent performance gives the firm the opportunity to “increase sales and operate more selectively…in our view to improve its sales mix.” This also means the launch of new product lines.
One area of disagreement between the market watchers was on the relative short and medium strengths of the Russian market. “We foresee demand in all key markets continue to grow, especially in Russia, where we expect foreign car sales to grow 30 per cent and 32 per cent in 2011 – 2012 [estimates] and replacement market to materially pick up.”
However Morgan Stanley was more reserved in its assessment: “We reserve our even weight ratings for stocks with very limited visibility on earnings or special situations. We believe Nokian falls into this category. Lack of market and company data limit our conviction on Nokian earnings development…A bull case risk is that Nokian is the only EU auto stock that is a real play on the recovering Russian consumer, and our economists have a macro preference for Russia.”