TRONCHETTI TO THE CITY: I WILL BE LEADER FOR 4 YEARS AGAIN. RUSSIA AND MOTORCYCLES TO GROW. AND THEY INSIST ON INTER AND F1
”We have an agreement under which I will be the leader for the next 4 years and then I will give my contribution for the others. Four years are a long time and I hope to work and work well”. This is how Marco Tronchetti Provera introduces himself to analysts in the City of London. With a good result given the welcome that analysts have bestowed on Pirelli's new business plan, the one that will take the Bicocca company to 2017 when, in all probability, the structure of the Milanese multinational will be decided here. And no longer, as happened in the past, around Mediobanca.
It is certainly no coincidence that the British capital has now assumed the same role for Italian finance that the fashion shows in Milan or Paris have for the world of fashion: after the day, Pirelli will be at the Generali next November 27th. And soon to Enel while Eni has already made the catwalk in front of the managers, the same ones who attended the exhibitions of Fabrizio Sacomanni, committed to convincing, in the various visits of the golden mile, the lords of money that Italy is a good place to invest money in the privatizations that (perhaps) will come. Even if it is the case that decided that, after the meeting with MTP, former leader of Telecom Italia, many analysts headed for the room where Marco Fossati, who owns 5,1% of today's Telecom, presents in the afternoon, his alternative plan for the former telecommunications incumbent in the hope of finding allies in his anti-Telefonica strategy. A plan that will be known more in the next few days, after its presentation to Consob.
But let's go back to Pirelli. In figures, the very aggressive industrial plan (the objective is a profitability of 15%) envisages investments in the four-year period 2014-2017 equal to 1,6 billion euro. The group will still focus on the premium segment, the one with the greatest added value which will serve to compensate for the tight margins of original equipment. The premium's contribution to revenues will rise from 56% this year to 60% in 2016. Instead, the target for revenues in the tire sector in general for 2016 is 7,5 billion euros, against 6,2 billion in 2013 , and the operating result will rise from 2013 to 2016 by 34%. The target for the ebit margin is an increase from 13,5% in 2013 to 15% in 2016.
The company also expects to achieve a reduction in net debt from the current 1,3 billion to 500 million euros. The net debt/GOP ratio will thus drop from 1,2 to 0,3 at the end of the period. The plan also envisages gross cash generation of 3 billion euros, in addition to the sale of financial assets for 150 million. Dividends are expected to be distributed for over 700 million euros, with a confirmed payout of 40% of consolidated net income.
"Our portfolio - specified the president - includes Prelios, Grandi Stazioni and a series of financial assets such as Mediobanca and RCS", it is from these assets that it intends to divest. This was explained by the president Marco Tronchetti Provera in response to analysts. "I'm not choosing an asset - he specified - I know that there is value that we can extract". On RCS, in particular, the president then added: “We confirm ourselves as shareholders, we have no intention of selling in the short term. But we look at management issues with an outside eye”.
"Russia, Europe and the Moto business will be the levers for improving our profitability in the coming years," said Gregorio Borgo, Pirelli's general manager of operations, promoted by Tronchetti to the upper floors together with Maurizio Boiocchi, head of new products.
"In Russia - added Borgo, who will be entrusted with the responsibility of industrial operations - the goal is to achieve an Ebit margin in 2014 'mid single digit', with revenues of approximately 280 million euros, and an Ebit margin 'double digit' since 2016, with revenues of approximately 370 million. For the motorcycle sector, Pirelli expects a recovery of the market from the end of 2013, in 2014 revenues are expected to exceed 400 million, in 2016 to 500 million, with a margin that will pass from around 16% in 2014 to over 17% in 2016 ”.
These numbers have been welcomed with some favour. “Analyst consensus for 2013 – reads the UBS note – is already in line with the new guidance in terms of sales and EBIT. Furthermore, the liquidity targets have been confirmed. Net borrowing stood at 1,971 billion despite the weak quarter”. Thus the company trades “at a 4,4 times enterprise value/ebitda and an 8,6 times price/earnings ratio with a 14,6 percent ebit margin. And therefore we recommend purchasing it with a target price of 12 euros which, in the best case scenario, could reach 14 euros”. The opinion of Kepler Cheuvreux is different, rating hold and target price at 10,20 euros. “We continue to favor Michelin and Continental among European tire makers, both hedged with a buy rating, due to earnings momentum and their valuation.”
Finally, sports. Pirelli will continue to stand by Massimo Moratti and Inter. “We have a contract that still lasts two years and we have been presented with the will, which will need to be formalized, to continue. There are the premises to continue” said Tronchetti. As far as Formula 1 is concerned, "we are close to closing an agreement, we are in the final straight" for the renewal of the tire supply.
