Tag: European Market

× Management forecasts long-term average annualized revenue growth of 7% and long-term EBIT margin to reach a range of 9% to 11% (five-year plan target to 2022) on the expansion of Jeep, Ram, Alfa Romeo, and Maserati brands. The company’s 2019 forecast includes EBIT of greater than EUR 6.7 billion for a margin of greater than 6.1%. 2019 revenue guidance was not specified, but the EBIT forecast implies at least flat year-over-year revenue.

× Contrast our Stage I forecast and midcycle assumption with management’s five-year plan targets and a 10-year historical annual revenue growth rate of 6% plus adjusted EBIT margin high, low, and median of 6.4%, 2.5%, and 4.3%, respectively.

× Even so, for our model to generate a fair value equivalent to the sell-side consensus and the current market valuation, investors would have to believe midcycle assumptions of 2.5% and 2.1%, below Fiat Chrysler’s 10-year historical range and demonstrating incredulity toward management’s five-year plan targets.

× Including assumptions that are well below management’s five-year plan, our model generates a fair value that represents 99% and 131% upside to the sell-side consensus price target and the current market valuation.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

× We think the market has priced BMW as though industry-disruptive technology spending will permanently leave margins at cycle lows, a view we do not share owing to the company’s narrow-moat driven by premium brands across the entire product portfolio.

× Our Stage I base case assumes 1% annualized industrial revenue growth versus 6% 10-year historical and average industrial EBIT margin of 6.4% versus the 10-year high, low, and median of 11.6% (2011), negative 0.5% (2009), and 9.0%. We assume a normalized sustainable midcycle of 7.5%.

× The company continues to guide to a long-term 8% to 10% industrial EBIT margin range with 6% to 8% for 2019, excluding a charge for the European Commission’s finding that German automakers colluded on diesel equipment (4.5% to 6.5% including the charge).

× To force our model to generate a fair value equal to the sell-side consensus and the current market valuation, we would have to believe normalized sustainable midcycle margins of 2.1% and 1.5%, respectively.

× Despite the headwinds already baked into our model, our fair value represents upside potential to the sell-side consensus price target and current market valuation of 63% and 76%, respectively.

Bayerische Motoren Werke AG, together with its subsidiaries, develops, manufactures, and sells automobiles and motorcycles, and spare parts and accessories worldwide. It operates through Automotive, Motorcycles, and Financial Services segments. The Automotive segment develops, manufactures, assembles, and sells automobiles and off-road vehicles under the BMW, MINI, and Rolls-Royce brands; and spare parts and accessories, as well as offers mobility services. This segment sells its products through independent and authorized dealerships. The Motorcycles segment develops, manufactures, assembles, and sells motorcycles under the BMW Motorrad brand, as well as spare parts and accessories.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

× Index funds continue to increase their market share at the expense of actively managed funds because of higher inflows (size adjusted).

× Global large-cap blend, US large-cap value, ecology, and financial equity funds saw the highest inflows on a Morningstar Category level in March.

× Corporate bond and US growth equity funds were highly unloved, as were multistrategy products.

× BlackRock topped the list of the asset-gatherers by branding name in the active spectrum; Xtrackers in the passive world.

× Allianz Income and Growth benefited the most among Europe’s largest open-end funds from the demand for risky assets. Conversely, the largest trackers of the S&P 500, IShares Core S&P 500 and Vanguard S&P 500 ETF, continued to bleed.

Long-term fund investors in Europe increasingly fell into line with the dominant global market trend in March as the reflation trade kicked in. This was reflected by a virtual standstill in the net sale data for bond funds, which only took in net EUR 1.2 billion, thus making last March the weakest month in 12 months. This reflects the heavy losses multiple bond segments have suffered over the past months as yields for government bonds rose sharply in the first quarter. The rising optimism of investors for the prospects of a post-coronavirus economy is also reflected in the high inflows of 47.3 EUR billion sent to equity funds. Cyclical sectors and value categories benefited the most from this trend. Conversely, precious-metals funds suffered a rout in March, shedding EUR 1.9 billion, another indication that gold has lost its allure in the current market environment. These outflows were only partly offset by inflows to broad basket and industrial commodity funds, and thus net sales for commodity funds were pushed into negative terrain in March.

Allocation funds enjoyed the highest one-month inflows since February 2018, while alternative funds returned to the red zone, suffering outflows of EUR 400 million after a two-month positive-flow intermezzo. In all, long-term funds garnered healthy inflows of EUR 60.2 billion. Money market funds saw modest outflows of EUR 430 million. Assets in long-term funds domiciled in Europe rose to EUR 10,952 billion from EUR 10,608 billion as of Feb. 28, 2021. This marked a new historic record for Europe’s fund industry.

Active Versus Passive

Long-term index funds posted inflows of EUR 16.9 billion in March versus EUR 43.3 billion that targeted actively managed funds. (The table below only includes data for the main broad category groups.) On the active side, equity funds enjoyed the highest demand, pulling in EUR 29.5 billion, while demand for actively managed fixed-income funds trickled down to EUR 493 million. Equity index funds enjoyed inflows of EUR 17.8 billion, and bond index funds drew in close to EUR 800 million. The market of long-term index funds rose to 20.9% as of March 2021 from 19.5% as of March 31, 2020. When including money market funds, which are the domain of active managers, the market share of index funds stood at 18.5%, up from 16.9% as of March 31, 2020.

Fund Categories: The Leaders

A look at the top-selling long-term fund categories reveals the continued strong demand for global equities. Global large-cap blend equity funds enjoyed an outstanding EUR 11.9 billion of net inflows last month, marking its 10th consecutive month of positive inflows. Passive and active funds shared the spoils, even though the two top sellers within the category were two index funds: HSBC Developed World Sustainable Equity Index Fund and BlackRock ACS World ESG Equity Tracker Fund, with almost EUR 2.0 billion and EUR 1.7 billion, respectively (both are distributed in the United Kingdom only).

US large-cap value equity funds took in EUR 4.8 billion in March, making its best month with regard to flows on record. This arguably indicates that value investors, after a decade in the wilderness, anticipate the so-called “great rotation”: a major turn in the investment cycle from growth to value stocks. The iShares Edge MSCI USA Value Factor UCITS ETF was the most sought-after product of the category, with EUR 1.5 billion attracted.

The equity sector ecology category continued to benefit from the huge demand for environmental, social, and governance and climate-focused funds, garnering inflows of EUR 4.0 billion. ACS Climate Transition World Equity Fund was the fund with the highest demand, with net inflows of EUR 524 million each.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

It benefits immensely from being in a duopoly with Boeing in the commercial aircraft manufacturing business for aircraft 130 seats and up; the pair of companies act as a funnel through which all commercial aircraft demand must flow. This allows both companies to actively manage their order backlogs to reduce cyclicality, despite the intense cyclicality of the customer base.

Airbus’ commercial aircraft segment can broadly be split into two parts: nimble narrow-bodied planes that are ideal for efficiently running high-frequency short-haul routes, and wide-bodied behemoths that are generally reserved for transcontinental flights. Recently, narrow-body volume has increased substantially due to the rise globally of low-cost carriers and improved technology that allows smaller airplanes to operate flight paths that were previously unprofitable. We think that Airbus’ A320 family has taken the advantage in the upper end of this market, with the introduction of the A321neo LR and the forthcoming A321neo XLR, which will have a capacity of 4,700 nautical miles and would enable single-aisle routes from India to Europe. We anticipate that further technology improvements will push low-cost carriers into routes that have been dominated by legacy carriers.

On the wide-body side of the market, we anticipate much slower growth, as we expect improving technology will allow airlines to substitute narrow bodies for wide bodies for an increasing number of routes. Airbus has a competitive wide-body offering, the A350, though backlogs suggest that Boeing’s comparable 777, 777X, and 787 offerings resonate more with customers. Airbus also has segments dedicated to the production of defense-specific products and helicopter manufacturing. These businesses are less material to Airbus as a whole, generating slightly over 10% of our midcycle EBIT. We anticipate modest growth from these segments, largely assuming that defense spending as a proportion of GDP remains constant in the European Union and that helicopter deliveries rebound over the medium term.

Bulls say

• Airbus’ A320 family continues to have a substantial lead in the valuable narrow-body market, and the A321neo XLR has the potential to open new long range routes to low-cost carriers.
• Airbus is well positioned to benefit from emerging market growth in revenue passenger kilometers and a robust developed-market replacement cycle.
• We expect that commercial airframe manufacturing for aircraft 130 seats and up will remain a duopoly over the foreseeable future. We think customers will not have many options other than continuing to rely on incumbents.

Bears Say

• Aerospace remains a highly regulated space, and regulatory burden could increase globally subsequent to the grounding of the Boeing 737 MAX.
• It could take years for airlines to recover from the economic carnage caused by COVID-19, and the virus could lead to changed consumer behavior that would be unfavorable for the industry (for example, video conferences replace business trips).
• Aircraft development is susceptible to development delays and cost overruns.

Profile

Airbus is a major aerospace and defense firm. The company designs, develops, and manufactures commercial and military aircraft, as well as space launch vehicles and satellites. The company operates its business through three divisions: commercial, defense and space, and helicopters. Commercial offers a full range of aircraft ranging from the narrow-body (130-200 seats) A320 series to the much larger A350-1000 wide body. The defense and space segment supplies governments with military hardware, including transport aircraft, aerial tankers, and fighter aircraft (Euro fighter). The helicopter division manufactures turbine helicopters for the civil and para public markets.

Source:Morningstar

Disclaimer

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.