PEERS & MARKETS

A hard week from 13 to 17 December for the main international markets (Milan -2.0%, London +1.0, Frankfurt -0.3%, Paris +0.3%).
After Moody’s downgrade of Ireland (Aa2 to Baa1) and the decision to monitor Spain’s rating (AA1), fears for the financial stability of the peripheral countries in Euroland were reawakened. Bank and insurance shares suffered with the respective European benchmark indexes down by 2.8% and 1.4%.

The negative figures for new car registrations in Eastern Europe in November (-8.3% yoy) hit the Auto sector, down by 2.1% (DJ Stoxx Auto).
Tyre sector shares were hit too (Continental -6.5%, Michelin, -1.4%) suffering, in addition to the auto figures, from the continuous rise in the cost of natural rubber, with futures touching 4.7$/kg (RSS 3) and 4.6$/Kg (TRS20), .

Pirelli contained its losses closing the week almost at par (-0.3%) outdoing both the European benchmark index (+1.8pp) and the FTSEMib (+1.7pp). Share  dealings fell with an average of approx. 1.6 million pieces exchanged (monthly average over 3 million).
Centrobanca’s upgrade of the share (BUY at 7.35€ from 7€) following its reviewed assessment of the tyre business is worth note: +9% at 2.68 billion €, a multiple P/E of 10.7x in 2011 in line with the average of its peers but up on Michelin by 16%. Forecasts are for average annual growth in tyre profits of 6.5% and an EBIT margin of 9.5% in 2013 (EBIT of 556 million €).
The reduced risk of M&A, high exposure on emerging markets, “sound debt position” and “safe dividend policy” were particularly appreciated according to brokers. The development of business in Russia also acted as an important stock catalyst.
IMI bank’s addition of Pirelli to the “securities to bet on in 2011” is also worth noting. Its focus on the premium sector and redistribution of production (with the projects in China, Latin America and Russia) will enable Pirelli to achieve and probably exceed its objectives despite the constant  increase in cost of raw materials.

PEERS & MARKETS

Enduring fears about the situation in Ireland forced prices down in the week 22 to 26 November 2010.
In terms of sector, financial securities were hit particularly hard (banks –4.9%, insurance companies –4.5%).

 The tyre segment was uncertain, after the downgrading of the sector by HSBC in view of the recent rally in natural rubber prices.

Pirelli closed the week at € 6.1, in line with Continental, Michelin fell by 2.4%. Pirelli volumes were in line with the average for the last month.
Pirelli upgraded by Equita (BUY, target price from €7.2 from €7.0). The broker has a positive view on the MoU signed with Russian Technologies and Sibur Holding to develop joint activities in the tyre and steelcord sectors, and in the supply and production of synthetic rubber derivatives in Russia.
Following Equita, the agreement will allow Pirelli to rapidly enter the Russian market with a technology compatible with Pirelli standards

PEERS & MARKETS

The week 23 to 27 August was characterised by falls on most European markets  (Milan -0.3%, London +0.1%, Paris -0.5%, Frankfurt -0.9%).
The negative data on the US economy stoked fears about the economic recovery, which were partially allayed by Friday’s figures on growth in the US GDP in the second quarter of 2010 (+1.6%, instead of the expected 1.3%) and the declarations by the president of the Federal Reserve on measures to support the economy.
Most sectors of the economy performed poorly (Auto -0.7%, Industrial -1.5%, Tech -2.6%).
European tyre shares outperformed the DJ Stoxx Auto with Pirelli at  +0.3% (€5.275). The stock confirmed its status as best performer in the FTSE Mib basket since the start of the year, with performance to date of +28.9 pp. The consensus target price was  €6.19 after the recent valuation upgrades (HSBC Buy at €6.8, SG Buy at €6.3, Banca IMI NAV at  €6.9). The most prevalent recommendation was Buy (78% of analyst coverage).
The price of Pirelli Real Estate did not change, closing at  € 0.347.