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Alphavalue is Europe’s leading provider of pan-European independent equity research. AlphaValue provides equity research based upon exhaustive and homogeneous procedures which allow to compare stocks geographically, sector-wise, and by thematics. The analysis also includes off balance-sheet... More
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  • Auto glitters

    Autos have gained 19% YTD, the best sector performance, and another 1.5% over the last week. The first figure has been driven by the Truck segment’s share price recovery while the second one is pulled up by the Car segment. German manufacturers’ early positive comments on their excellent first half may not yet be fully discounted.

    The Chinese sky seems to be the new limit for the industry which is good news for the Germans, decent news for PSA (Buy, France) and mixed news for Renault (Buy, France) which has to rely on 44% owned Nissan’s sino exposure. The Car segment which lost €6bn last year (Porsche (Sell, Germany), regarded as a holding company, and Fiat, not covered, are not included) is now expected to gain €3bn this year but early 2010 expectations were barely for breakeven. So the pace of upgrades is strong. 2011 earnings are seen at €7bn or so but 2012 at €11bn still looks below the peak of 2007 ( €14bn).

    The sector will remain volatile as European demand is expected to take the full brunt of an end to subsidies. This is bad news for volume manufacturers and seemingly much less for premium brands. The sector trades at 40x 2010 earnings, a useless metric. It appears to be reasonably priced on an EV/sales basis (1.18x in 2010 vs. 0.97x in 2007) but actually good value on a P/Book : 0.93x in 2010 vs. 1.28x in 2007.

    The clear thing is that the share price momentum of every stock is very strong, the upsides are still substantial (25% or more) with the exception of VW (Reduce, Germany) and Daimler (Reduce, Germany), that is until they are upgraded on their H1 earnings.

    Disclosure: Appears to be reasonably priced on an EV/sales basis
    Jul 20 9:01 AM | Link | Comment!
  • Simple and Popular

    Ahead of next Friday’s release of stress test results across the European banking universe, highlighting Banco Popular Espanol’s (BPE) excellent value may appear bold. Sentiment has improved though over the last few weeks. The positive of BPE is the simplicity of its business model: ordinary lending (loan to assets at 80%) to businesses (58% of loans) with a total Spanish focus (94% of rev.).

    This simple proposition means that the bank is today suffering from weak demand (+3% max in 2010) when it has to provision its past excess optimism after lending to Spanish developers (25% of its loan book). In addition BPE is confronted with the negatives of holding the wrong sort of repossessed property assets, possibly underprovided at only 14%. Its loan loss ratio is expected to halve to 65bp only by 2011 but BPE has the Tier1 resources (core at 9%) to cope in a Basel III compliant way since it raised about €1.3bn in 2009. It also has nearly €1bn of generic provisions.

    The positives of the Spanish slowdown are that deposits grow more rapidly than loans, thereby improving the funding equation with a deposit to assets ratio at 46% vs. 40% previously. In short BPE is a simple banking proposition in the middle of a down cycle with the means to cope.

    As it is likely to emerge from the stress test with the proper health stamps, its target price at €8 looks reachable and makes it a clear Buy. Not to speak of a sharp expected rebound of the dividend with a target 9% yield in 2011.

    Disclosure: Long Strong Good
    Tags: Banks
    Jul 20 8:58 AM | Link | Comment!
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