MICHELIN

CLOSING TRADING SELL + 2.87% ABS +3.07% REL

Numbers tonight and I think they will be ok. This was a trading sell and I don’t need the earnings risk.

May look to re short tomorrow post numbers but for now we step aside and book a small profit.

 

MICHELIN
TRADING SELL

Thursday • 28th September 2017 • 16:08

Despite recently cutting EBIT guidance by 3% due to FX at a conference, ML has rallied 8% in the last couple of weeks. The reason was excitement over the prospective valuation of Pirelli which comes to market at the beginning of next month.

There were talks of it going for 13x earnings, as pure play premium tyre company, dubbed the ‘ferrari of tyres’. It is disappointing to hear then, that it is coming at the low end of the range, perhaps even as low as €6.5, or 11x earnings.

ML has rerated to 11.5x, does not have the same earnings quality as Pirelli and does not have the value creating break-up potential as Conti. We therefore view the recent rally as unjustified, and would expect a swift retracement of the gains. TRADING SELL.