Analysts highlight ‘difference in momentum’ between Continental and Michelin results

1st August 2011 | 0 Comments

Despite the fact that both Continental and Michelin reports second quarter/first half pre-tax profits (EBIT) broadly in line with expectations, financial analysts have highlighted the “difference in momentum” between the two firms’ results. According to Morgan Stanley, the intraday spread between the two stocks was 600 basis points when the results were announced on Friday 29 July.

“Although we think Michelin can surprise positively in the second half, in the shorter term Conti should outperform thanks to improving momentum in consensus earnings,” Morgan Stanley’s Edoardo Spina commented, explaining the differential.


The banks view is that Continental’s second quarter figures were in-line in terms of EBIT (751 million euros, a 10 per cent margin) but better-than-expected free cash flow and net debt (7.1 billion euros compared with greater than 7.3 billion euros in consensus).

Management also expressed an unexpected degree of confidence: “we do not see any reason why the good development in earnings should be weaker in second half than in the first half.”


In contrast, while Michelin’s first half profit stood at 971 million (almost exactly in line with consensus expectations), in the French manufacturer’s case, free cash flow was said to have been “weaker than expected” and net debt reportedly overshot 0.84 cents a share.

In addition the analysts were wary about the fact that the company didn’t move on its current full year guidance of higher profit year-on-year: “…leaving the option of potentially lower profits sequentially in second half.” As a result Morgan Stanley reiterated earlier advice that it prefers Conti and Pirelli shares to Michelin in the shorter term.

“Under current trading conditions, we believe the market will overlook the greater than 10 per cent surprise we expect Michelin to post in the second half and 2012, as the stock will lack significant catalysts until…October,” the analysts concluded maintaining its overweight rating on Michelin based on “improving momentum, growing pricing power and deep value.”

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