Description
Daimler AG (DAI) develops, manufactures, distributes and sells a wide range of premium cars; the group also manufacturers vans, buses, trucks and participates in a Formula 1 racing team. Daimler maintains a 3.1% stake in both Renault and Nissan, a 7.5% stake in EADS/Airbus, as well as 48.5% participation in Tognum, a diesel engines and energy system company, in a joint venture with Rolls Royce. On the other side, the State of Kuwait maintains a stake of 7.6% interest in Daimler and Renault and Nissan maintain 1.55% each. Daimler also participates in a joint venture in China with Beijing Automotive.
Daimler maintains and develops various brands such as Mercedes-Benz, Maybach, Smart, Freightliner, Sterling, Setra and Fuso.
The group’s key position in the premium car market, which it has been developing since 1950, has since 2000 been successfully challenged by both the Volkswagen Group (with Audi, Bentley, Bugatti, Ducati, Lamborghini, MAN, Porsche, Scania, Seat, Škoda, and Volkswagen) and the BMW group. As a result, Daimler has posted weak results for some time. However, the most recent results, €29.7 billion in sales, finally show some progress. In fact, despite adverse market conditions, sales were about 5% ahead of market average estimates. This broad based improvement is well on track, and is supported by high product activity for the Mercedes E, S and C –Class models. The laggard of the group is the A-Class model. In fact, this model has been a source of concern for the company ever since its development.
Based on future improvements (both economic and operational), Daimler still has room to deliver better operating results. Present key figures for the company are attractive: DAI trades at 0.4x its sales, 4.4x EBITDA, 6x EBIT and 10x PE. And quarter two results claim that improvements are continuing, for instance the adjusted EBIT was at €2.5 billion, which is 25% ahead of analysts’ average estimates.
Strengths and weaknesses analysis / Fundamental analysis:
Strengths:
- Daimler has an excellent portfolio of brand names, particularly with its key brand “Mercedes”,
- Structural under-performance of some car classes has been addressed and improvements are visible,
- The present peak in capex is set to deliver results by 2014 and onwards,
Weaknesses:
- The car sector is highly cyclical. Moreover, today the industry is also subject to new environmental considerations and government imposed rules and restrictions. In the future, these issues are not likely to be less strict,
- Reduced availability of credit (due to de-leveraging in the banking industry) will impact new car-sales negatively, especially at the top-end. Buyers will eventually shift to the next lower priced model of German origin,
- The overall costs to develop a new type of car are estimated to be around €6 billion. After the missteps experienced with the A-Class, Daimler can’t afford another mishap.