LONDON (Reuters Breakingviews) – Concise insights on global finance in the Covid-19 era.
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BURN RUBBER. Continental could use some M&A to jump-start a spluttering valuation. Shares in the 25 billion euro German auto supplier fell 6% on Tuesday after boss Nikolai Setzer cited a shortage of semiconductor chips for a likely “challenging” 2021. That led Setzer to predict annual operating profit of 2.3 billion euros, using the mid-point of company guidance, about 15% below what analysts expected, according to Refinitiv data.
The drop means shares now trade at 12 times expected 2021 operating profit, including debt, a discount to Gallic rival Valeo at over 13 times. One way to remedy that is a spinoff of Conti’s engine division – mooted for the second half – which will help build the battery cars of the future. Another might be to do the same to its more profitable tyre division. Put the latter on a 9 times forward operating profit multiple, like peer Michelin, and it might have a market value of 18 billion euros on a standalone basis, or nearly three-quarters of the group equity value despite accounting for only 40% of sales. That could inject M&A fuel into Setzer’s jalopy. (By Christopher Thompson)
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