> Energy, Materials & Industrials
> Energy, Materials & Industrials
Continental — Tim Rokossa, BUY, close €232.3, €250 tgt, 8% upside
■ 1) Automotive outperformance is at an inflection point. Continental has
taken Valeo's mantle as the fastest-growing European supplier. Automotive
organic growth was 9% in Q3 (700bps above global production and 250bps
above Valeo).
■ 2) Continental is the best play on the autos 'mega trends.' Continental
is a leader in all of:
- Autonomous driving — indeed, the world's largest player. This segment
grew 41% yoy in 9M17. This is not limited to Chassis & Safety but also
includes software, consolidated in the Interior division.
- Electrification. According to Continental, its content per car could be up
to 3x higher for a full EV compared to a standard gasoline engine.
- Digitalisation
si The mix shift away from diesel helped turbochargers grow >50% in Q3.
■ 3) Rubber should accelerate further. The margin was a slight beat in O3.
With a negative raw mat impact abating in coming quarters, and given our
expectation that price increases (+2% in Q3) will prove sticky, we expect
earnings momentum to accelerate.
• 4) Valuation: Continental has €20 upside just to reach a valuation in line
with peers (current 18E PIE is only 11.2x), despite robust growth
• Cash generative (€2.4bn ex M&A this year). We see scope to increase
pay-out, given CFO guidance of no major transactions in the short term.
• Catalysts: FY results 09-Jan — talk around ADAS could offset cautious
guidance
Related DB Research:
What Conti's CFO statements mean for our view on 2018 (Rokossa)
Get ready for a (mod 2018 (Rokossa) Deutsche Bank
Continental was one of the fastest growing auto suppliers in Q3
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Deutsch* Bank Research' European Equity Focus - Jemmy 21:18
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