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Positive week for the main European stock markets (Milan +1.1%, London +0.9%, Frankfurt +2.3%, Paris +2%) the one from the 13th to 17th of February. Markets were positively influenced by the expectation of a close agreement between the European Union and Greece. European Auto & Parts sector was positive (+2.9% the sector index) amplifying the positive macroeconomic news flow. Pirelli closed the week at €8.16 (+8.9%), outperforming the sector (+6.0pp) and its main peers (+4.2pp vs Continental, +7.7pp vs Michelin, +6.3pp vs Nokian). The stock benefited from an upgrade by Intermonte (Overweight to Buy) with a Target Price of €11(€9.0 the previous valuation).
European stock markets were down in the week from the 6th to the 10th of February 2012 (Milan -0.5%, London -0.8%, Paris -1.6%, Frankfurt -1.1%). Market sentiment was affected by the negotiations between European authorities and the Greek government concerning the austerity measures needed to obtain the €130bln aid package. Moreover, US consumer sentiment data disappointed: the benchmark index was down to 72.5 in mid February, compared with the end-of-January reading of 75 and expectations of 75.5. The index remains at historically low levels (before the current crisis, US consumer sentiment index was at approximately 87 points). The central bankers of England and Europe left benchmark indeces unchanged (0.5% and 1% respectively) and increased the purchase of Sterling denominated bonds (Bank of England).
The European Auto & Parts stock index was flat in the week. Chinese car market data was positive for German OEMs, which recorded year-on-year gains in January to the tune of 20% to 30%.
Pirelli shares were slightly up in the week (+0.1%), closing at € 7.49 with an average daily volume of ca. 3.5 million shares. According to HSBC’s latest report, Pirelli is best positioned to make up for a reduction in volumes in the industry thanks to its increasing exposure to the Premium segment, which benefits the mix. The broker confirms its view on the stock (Overweight, Target Price increased to €9 from €8.5) based on the company’s good fondamentals and the superior growth profile in the sector.
During the week, Michelin and Nokian published their FY 2011 results and guided for an improved profitability in 2012. According to Goldman Sachs, the read-across for Pirelli is positive, given its strong pricing power provided by the Premium positioning and the greater proportion, compared to its peers, of raw material cost absorbed in 2011 (3-monthslag vs 6-months).
Key european stock market indices were mixed in the week from the 23rd to the 27th of January, 2012 (Milan +2%, London +0.1%, Frankfurt +1.7%, Paris -0.1%). According to the IMF, world GDP growth in 2012 will be slower than anticipated (+3.3% vs 4% previously), and Eurozone GDP will contract by 0.5%.
The US Federal Reserve stated the intention to keep benchmark interest rates at the current low levels until 2014, and added that other stimulus measures are still on the table. In the bond market, the spread between Italian BTPs and German Bunds narrowed by approx. 100bps, after the successful outcome of Italian sovereign debt auctions (3y Ctz yield down to 3.76% from 4.85%).
Within the Auto & Parts sector (European index up 1.1% vs Stoxx 600 -0.2%), Auto OEMs and Parts producers outperformed, thanks to positive US durable goods data. Tyre stocks were weak, including Pirelli which ended the week down 1.9% at €7.08, in line with peers. According to brokers Exane, Equita and Intermonte, Pirelli will hit 2011 profitability targets notwithstanding the softness in Q4 volumes; attention now turns, according to Intermonte, to H1 2012 sales which should be sustained by the low level of summer tyre stock held by dealers.