Closing Bullish German Autos View As Gains Priced In

Despite remaining constructive towards the German autos sector, we have decided to remove our bullish German autos view - played through Daimler - from our Asset Class Strategy table, with 15.6% of implied gains since July 15. Following above-expectation Q313 results the stock initially broke through the EUR60 level, which we had previously identified as an area of technical resistance ( see 'Further Gains Expected As Bullish Daimler View Plays Out', October 25). At the time, though, we highlighted that there was 'a risk of some downward consolidation', cautioning that a 'clean break below the EUR60 mark may see us exit our view'. This has now played out, and since news of Mercedes Benz posting above-expectation 15% year-on-year (y-o-y) global sales growth in October has not had the impact on the share price that we thought it might ( see graph), we have opted to take profit on our view.

Further Growth Expected

Daimler's fundamental picture, however, remains attractive, as we expect the company's sales growth to continue into Q413, as the new model releases and competitive pricing buoy consumer interest. Furthermore, the company is aiming to open a number of new showrooms across China over the remainder of the year, which should serve to help boost demand further as they target key consumer groups.

Stock Consolidates, But Strong Fundamentals Still In Place
Daimler Stock Price, Nov 2012- Present, EUR

Despite remaining constructive towards the German autos sector, we have decided to remove our bullish German autos view - played through Daimler - from our Asset Class Strategy table, with 15.6% of implied gains since July 15. Following above-expectation Q313 results the stock initially broke through the EUR60 level, which we had previously identified as an area of technical resistance ( see 'Further Gains Expected As Bullish Daimler View Plays Out', October 25). At the time, though, we highlighted that there was 'a risk of some downward consolidation', cautioning that a 'clean break below the EUR60 mark may see us exit our view'. This has now played out, and since news of Mercedes Benz posting above-expectation 15% year-on-year (y-o-y) global sales growth in October has not had the impact on the share price that we thought it might ( see graph), we have opted to take profit on our view.

Further Growth Expected

Daimler's fundamental picture, however, remains attractive, as we expect the company's sales growth to continue into Q413, as the new model releases and competitive pricing buoy consumer interest. Furthermore, the company is aiming to open a number of new showrooms across China over the remainder of the year, which should serve to help boost demand further as they target key consumer groups.

Stock Consolidates, But Strong Fundamentals Still In Place
Daimler Stock Price, Nov 2012- Present, EUR

This strong performance should continue into 2014, as sales remain elevated by new model releases and broader growth in passenger car sales in several of its key regional markets, in addition to further cost-cutting measures across several divisions. Comparative year-on-year (y-o-y) growth in H114 will also be boosted by low base effects from a fairly moribund H113. Accordingly, we see little risk of a significant retrenchment in the stock price in the coming months.

Moreover, we maintain our broadly bullish view on German auto makers generally, and expect these companies to continue to post strong sales and revenue growth over the medium-term.

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This article is tagged to:
Sector: Autos
Geography: Global, Germany
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