PEERS & MARKETS

Waiting for Bernanke’ speech in Jackson Hole last Friday and for possible Fed’s intervention to help US economy (which in 2Q 2011 grew by +1.0% against the previous estimate of +1.3%), markets experienced a general recovery (Milan +1.4%, London +1.8%, Paris 2.3%, Frankfurt +1.0%).

It was a positive week for the Auto & Parts sector: the sector index recovered partly (+2.5%) the performance experienced in the last month (-28.6%) due to negative market expectations. Within the sector tire stocks performed better than cars ones because of their defensive nature (replacement represents more than 70% of sales): Pirelli (5.25€ as off August 26) lost 13% from January (in line as peers like Michelin), while Fiat Auto (-38%), Renault (-39%) and Daimler (-30%) experienced bigger losses.

Analysts’ view on Pirelli stock remains positive: 88% Buy recommendations and a mean consensus TP of 8.67€, in line with the one of July.

BUTTON TAKES SECOND WIN ON PIRELLI P ZERO

McLaren’s Jenson Button has taken his second victory in mixed conditions at the Hungaroring, following his win under similar circumstances in Canada earlier this year. The Englishman was assured of victory in Hungary Grand Prix after his team mate Lewis Hamilton changed onto P Zero Blue intermediate tyres in the closing stages of the race only to find that the conditions were not wet enough, forcing him to revert to slicks in his fifth pit stop of the afternoon.

Button and Hamilton fought closely for a victory that centred around tyre strategy, with Hamilton having saved an extra set of P Zero Red supersoft tyres for the race during qualifying.

On lap 46, with light rain falling once more, Hamilton spun – allowing his team mate pass.

Hamilton’s fightback on the P Zero Yellow soft tyre to fourth place in damp conditions was a highlight of the race, despite a drive-through penalty that meant he visited the pits six times in total. Like Button, Sebastian Vettel stopped three times and ran a final 29-lap stint on the soft tyre to claim the runner-up spot, 3.5 seconds behind the winner, while Fernando Alonso stopped four times in the Ferrari to take third.

Pirelli’s motorsport director Paul Hembery commented: “It’s been another fascinating race in mixed conditions which has allowed Jenson Button to demonstrate his skills of mastering changing weather and the capabilities of our P Zero tyres, which demonstrated both performance and durability throughout the grand prix. Even when rain was falling at the end of the race, Button managed to secure enough grip from the P Zero Yellow soft tyres to make sure of a well-deserved victory. I’m particularly pleased because the Hungaroring is a place that has not always been renowned for overtaking in the past, but today we saw plenty of it, in a race that contained more twists and turns than the circuit itself!”

PEERS & MARKETS

Fears about the debt of Eurozone countries and the difficulties about the agreement on US government borrowing (agreed on Sunday 31 July)  dominated stock markets in the week 25-29 July. On the main financial markets prices fell by an average of 3%, with a fall of 5.3% in Milan due to the high incidence of bank shares: this was also the worse-performing sector in Europe as a whole (-5%).

Sales in the auto&parts sector (-4.8%) despite the good results in the 2Q reporting season, already anticipated in full by stock markets.

Pirelli closed the week at € 7.24 outperforming the Milan stock market (+5pp), the sector index (+4.7pp) and its main peers (+7.6pp v. Michelin, +3.9pp v. Continental, +6.2pp v. Nokian). The share price was sustained by the agreement on Russia and the results of 2Q 2011, which exceeded market expectations. According to Intermonte, the agreement reached on 25 July between Pirelli, Russian Technology and Sibur will allow Pirelli to immediately enter a high profitability market. The analysts comments about Pirelli’s results were positive: “an excellent quarter” demonstrating the solid positioning of the business and high pricing power. There were six upgrades in the TP for the share: Banca IMI (€8.92 to €9.7), Banca Aletti (from €8.50 to €9.50), Exane (from €9.70 to €10), Banca Leonardo (from €8.2 to €10.1), Axia (from €8.2 to €9.0) and Chevreux (€8.0 to €8.20). The mean consensus TP is 8.80€ with BUY recommendations from 92% of brokers.