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.

TYRE STRATEGY THE KEY TO AN ACTION-PACKED CHINESE GRAND PRIX

Nico Rosberg completed a perfect weekend for Mercedes, during which both the German driver and his ‘Silver Arrows’ team managed their allocation of the P Zero White medium tyre and P Zero Yellow soft tyre perfectly. Having claimed a dominant pole position by half a second, Rosberg took his debut victory and the first win for Mercedes since the 1955 Italian Grand Prix, using a two-stop strategy. Rosberg’s pace at the beginning of the race was enough to ensure that he was able to complete his first pit stop without losing the lead and from there on he was able to control his advantage, completing the race on the medium tyres.

Tyre choices and pit stop strategy set up a duel in the closing stages of the race, as McLaren’s Jenson Button on a fresh set of P Zero White medium tyres attempted to chase down the leader, on an older set of the medium tyres. Although Button – who stopped three times – was delayed by a problem during his final pit stop, he was just one of many drivers to mount a spectacular charge during the final stint in Shanghai. With four laps to go, Button passed Red Bull’s Sebastian Vettel to claim the runner-up spot.

Vettel chose a two-stop strategy, but was forced to defend from the McLaren of Lewis Hamilton, who claimed the final podium place on the penultimate lap, despite making one more pit stop than the reigning world champion. Hamilton now leads the drivers’ championship, with McLaren having adopted a different strategy to most of their rivals. The Englishman was one of the few drivers to stick with the soft tyre during his second stint, while the majority of other drivers went to the harder tyre on their first stops.

Pirelli’s motorsport director Paul Hembery commented: “Many congratulations to Nico and to Mercedes for this thoroughly well-deserved victory, during which they exhibited a perfect understanding of how to get the most out of both compounds in challenging circumstances and keep the tyres within the optimal performance window. As expected, we saw a high degree of tyre degradation in the tough conditions of China, with the front-left tyre in particular coming under particular stress. This gave the opportunity for the teams to try out a wide variety of different strategies, which resulted in spectacular yet clean wheel-to-wheel racing that if anything surpassed even last year’s Chinese Grand Prix. I’d also like to congratulate our former test driver Romain Grosjean, who claimed his best-ever finish with sixth overall for Lotus.”

PEERS & MARKETS

The week from 12th to 16th March was positive for the main European stock markets (+3.7% Milan, London +1.3%, +4.0% Frankfurt, Paris +3.1%) driven upward by the release of the first tranche of aid to Greece from the EU and the positive macroeconomic newsflow. The Chairman of the Fed confirmed the willingness to keep interest rates low until 2014 despite the progress observed in the labor market and the better-than-expected US leading macroeconomic indicators (employment, consumer confidence, industrial production).

Another good performance of the Auto & Parts sector with an increase of +2.5% along with Industrials (+4.0%) and Banks (+5.3%).

Pirelli, after the publication of the annual results, ended the week up by +15.0% at 8.99€ with an average daily traded volumes of more than 12 million pieces, about three times higher than last quarter.

According to analysts reports, Pirelli closes the year with a “good set of results” in line with expectations. The upward revision of guidance on profitability surprised the market by offering room for upside to consensus.  The new targets, according to analysts, adds credibility to the business plan 2012-2014.

10 brokers have revised upward the valuation on the stock (TP) by an average of EUR +1.2. The consensus Target Price is now at € 9.70 with over 90% of coverage with positive recommendations.