PEERS & MARKETS

Main European Stock Exchanges were mixed in the week from 17 to 21 September 2012 (Milan -3.8%, London -1.1%, Frankfurt +0.5%, -1.4% Paris, Madrid +0.9%). Market Performances were affected by fears of a slowdown in the global economy following weak macroeconomic data: PMI Manufacturing index resulted worse than expected in Europe (42.6 vs. 46.4E) and forecast in decline in China, US jobless claims in September higher than expected.

The Auto & Parts sector was down due to negative car registrations figures in Europe (-8.5% in August) and worsening of tensions between China and Japan. Among the major downside: Fiat Auto (-7.6%), Peugeot (-7.7%) BMW (-3.6%).

Pirelli closed at € 8,945, down by 4.5% with an average daily trading volume of 2.5 million units. Peers trend was mixed with Nokian and Michelin down by 7.6% and 1.2% respectively while Continental was flat as regards inclusion in the blue chip index Dax. The outperformance of Pirelli in the last months (+37.5% YTD) led CITI to take a more cautious view on the stock (Neutral from Buy, TP € 10.5 to € 10): according to the broker, space of upside for the stock is limited since market expectations are already including company’s targets.

PEERS & MARKETS

European stock markets were again positive in the week from 10 to 14 September 2012 (Milan +3.2%, London +2.1%, Frankfurt +2.7%, Paris +1.8%, Madrid +3.4%) supported by the positive macroeconomic newsflow.

The German Constitutional Court ratified the ESM (with a financial commitment of up to 190 €bln) and the Federal Reserve Governor, mr Bernanke, launched a third round of Quantitative Easing in order to improve employment in the United States (Mortgage Back Securities purchase without preset limits – first tranche of up to 40$bln). The Fed also reiterated its commitment to keep official interest rates near zero until mid 2015 (0.25% the current level).

Auto&Parts sector marked the best performance in Europe (+5.6% Stoxx Auto) driven by Audi and Volkswagen good car sales in August and positive newsflow on Chinese market.

Pirelli ended the week at € 9.37 with an increase of 4.6% and an average daily trading volume of about 3 million pieces. The stock has benefited from the upgrade of Societe Generale who brought the target price to 10.4 € (from 8.7€, Buy confirmed): following the broker, Pirelli fundamentals remain solid and 2012 objectives can be reached despite the difficult market environment. The consensus price target stands at 10.5 € with 75% of the coverage with Buy recommendation.

PEERS & MARKETS

Key European stock markets were up in the week from the 3rd to the 7th of September 2012 (Milan +6.7%, London +1.5%, Frankfurt +3.5%, Paris +3.1%, Madrid +6.2%) thanks to the announcement of an unlimited government bond buying program by the ECB, welcomed by investors. Important indicators of economic activity, however, continued to disappoint: US manufacturing contracted in August for the third month in a row and job growth slowed more than expected adding only 96,000 jobs (forecast was 130,000 units); this fueled expectations of a stimulus intervention by the FED.

Auto & Parts stocks performed in line with the market (+1.9% in the week vs. European index Stoxx 600 +2.6%). New car registrations for the month of August showed a negative trend for the major markets: Italy -20%, France -11% and Germany -5%.

Pirelli shares ended the week at €8.96, up 2.3%, with limited trading volume (2.6 mln shares traded on average per day, lower than three month average at 4 mln shares). In a report on the tyre sector, French broker Cheuvreux confirmed the appeal of the industry thanks to the current discount on historical multiples and the positive earnings momentum. According to the analyst, Pirelli stock should continue to outperform on the back of the company’s right strategy and excellent execution; “Buy” rating confirmed, as well as the €11Target Price.