PEERS & MARKETS

Major European stock markets recovered strongly at the end of the week from the 23^rd to the 27^th of July 2012 (Milan +4.1%, +0.9% Frankfurt, Paris +2.7%, -0.4% London, Madrid +5.9%). Markets reacted positively after European Prime Ministers reached an agreement on the protection of the Euro currency.

The Auto&Parts sector was up by 2.0% (Stoxx Auto) benefiting from the positive industry  newsflow.

Pirelli, the first to publish half-yearly results in tire sector, ended the week at 8.1 € after a rise of 9.4%, in strong outperformance compared to peers. The activity on the stock was high, with over 6.2 million units traded in average per day, 70% more than last month’s average.

Positive comments from analysts on the results with a higher than expected operating performance (+5% vs. Consensus estimates on the ebit.) which confirms the strong position in the premium segment. According to HSBC (Buy and TP at 15 €), Pirelli is confirmed as a ” strong  premium story” and the stock with the best earnings growth profile in the tire sector.

PEERS & MARKETS

Major international stock exchanges were mixed in the week from July 2^nd to 6^th of July 2012 (Milan -3.8%, London +1.6%, Frankfurt -0.1%, -0.9% Paris, Madrid -5.1%). Despite the cut in official interest rates by Central Banks of Europe and China (-25bps, Bank of China has made the second cut in a month) markets was affected by fears of a worsening in the macroeconomic environment. The President of the ECB, Draghi, during the press conference on Thursday (July 5) showed that economic growth in the euro area remains weak; the picture is worse than just a month ago since growth across the euro area is weakening, including countries that before were continuing to grow.

Negative newsflow affected Bank stocks: the reference Stoxx was down by 1 .4%. Brokers were expecting a new financing plan (LTRO3, Long term refinancing operation)  but according to the President of ECB this will not be taken into account in the short term.

Auto&Parts sector was positive by 1.4%.

Pirelli ended the week virtually unchanged at € 8,265 (-0.4%) with an average daily trading volume about three million units. Pirelli stock is still among the top 4 best performer in the FTSE MIB YTD: +27.1% (+36.1 pp vs FTSE MIB).

PEERS & MARKETS

A sharp rise for Pirelli in the week 4 to 8 April 2011, returning to a three-year high of €6.5 (+3.8%, about 2pp higher than the Milan blue chip index). This price trend was supported by upgrades by Mediobanca (Overweight and TP at €7.2 from €6.9), Societe Generale (Neutral at €6.9 from €6.25) and Morgan Stanley (Overweight at €9 from Underweight at €6.6).
For Morgan Stanley in particular, Pirelli is the only share in the Auto & Parts sector to offer a high upside on its results: growth of 20% in EPS is forecast in 2011, and 21% in 2012.
The trend on the major international markets was also broadly positive (Milan +1.9%, London +0.8%, Paris +0.2%, Frankfurt +0.5%).
The BCE decision to raise the official interest rate by 25 points (to 1.25%) had a particularly positive effect on bank shares, which recorded growth of 2.2% over the week, and on the Euro, which reached a 15-month high of 1.4426 against the dollar. Industrial (Stoxx –1.4%) and Auto (-0.7%) shares, in contrast, were weak. 
It should be noted that the continuing geopolitical tensions in the Middle East and Africa meant that oil reached a 32-month high during the week (with Brent at 124 dollars a barrel).