PEERS & MARKETS

International stock markets performed well during the week from the 10th to the 14th of October (Milan +4.9%, London +3.1%, Frankfurt +4%, Paris +5.1%). Markets benefited from the speech of the President of the European Commission, which favoured a stronger European Financial Stability Facility.

A strong increase for the auto sector: the DJ Stoxx Auto rose by 10.8%.

Pirelli closed the week at €6.4 (+13.7%), outperforming the Milan stock market (+8.8pp), the sector index (+2.9pp) and its main peers (+3.6pp v. Michelin, +1pp v. Continental). The share price was sustained by the positive reports of Intermonte (Outperform and TP to 7.5€ from 5.7€) and Mediobanca (Outperform and TP to 7.0€ from 6.9€). According to Intermonte, the scenario is improving for Pirelli and the sector compared to the beginning of August: 1) solid winter demand (winter season 2011 should be better than last year); 2) valuations are attractive since the sector and Pirelli are at a record low; 3) further cuts of consensus estimates are not likewise; 4) positive expectations for the business plan; 5) possible regulatory changes that will have a positive impact on the sector (mandatory winter tires in France and new minimum tread thickness in Germany).

The mean consensus TP is 7.95€ with BUY recommendations from 92% of brokers.

PEERS & MARKETS

Fears about the macro scenario influenced negatively international markets (Milan -6.9%, London -1.5%, Frankfurt -6.3%, Paris -5.5%) during the week from the 5 September to the 9 September.

The Auto & Parts sector was down  7.3% with sales on all stocks. Pirelli closed at 5.07€ (-5.5%), Michelin -5.7%, Continental -9%.

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.