Daimler, BMW Seen Revving Up Despite Brexit
European auto sales have risen strongly so far this year, according to reports from the European Automobile Manufacturers Association, although it may be some months before it is possible to tell whether Brexit dents demand.
The automotive sector was one of many to have been sledgehammered by the U.K.'s decision to leave the European Union. Peugeot (PEUGF) and Renault (RNSDF) lost between 20% and 30% of their value in the immediate aftermath of the vote and are yet to recover fully. German car makers, including Daimler (DDAIF) and BMW (BMWYY) , fared slightly better, with losses for the shares in the low double digits.
In the five months ended May, new car registrations grew by 9.9% in Europe, with much of the increase driven by demand from Italy, France, Spain, Germany and the U.K. In May alone new registrations grew by 33% on the year. June figures are due out on Friday.
"Europe is coming back...I'm looking at some really remarkable numbers for auto sales" said TheStreet's Jim Cramer in an interview on Tuesday.
The high cost of cars means that the fortunes of vehicle manufacturers are inextricably linked with growth and private consumption within the economies that they sell in to.
Germany's Daimler and BMW may have managed to escape much of the Brexit fallout because of their premium branding; typical customers will likely prove more resilient in the wake of a U.K. economic slowdown as well as more willing to cover the cost of any post-Brexit tariffs. But Peugeot and Renault's mid-market positioning makes them more vulnerable.
But even so, Barclays rates Peugeot, as well as BMW as a buy. They cite valuations that imply financial crisis levels of demand and pricing, and have assigned price targets which imply double-digit gains from current levels.
Berenberg analysts noted in the wake of the referendum that price targets and expectations for earnings had been impacted but certain stocks still looked promising.
They rate Volkswagen (VLKAY) , Porsche (POAHY) and Daimler as their top picks out of the auto manufacturers, describing them as misunderstood and fairly priced, particularly given high levels of investment in driverless cars.
Barclays analysts are, however, gloomier than some commentators in their prognosis for the industry as a whole. They expect European auto sales growth to slow throughout the remainder of 2016, before sales contract by around 1% in 2017. They note that sales had already been slowing in the U.K. during early 2016, after the car industry recorded a strong 2015, while European sales growth had also begun to slow as recently as June, according to their own proprietary data.
However, Barclays added that the lag between when a new car is ordered and when it finally rolls off the production line to be registered means that it could be as late as September before early post-Brexit changes in demand become apparent.
German car stocks were up by early afternoon local time in Europe on Wednesday, with Daimler up 1.2%, BMW up 2.4% and VW up 1.1%. Renault and Peugeot were up marginally, while Fiat Chrysler (FCAU) - Get Report edged lower.