(News Bulletin 247) – The German automotive supplier expects an improvement in its margin for its automotive business in the third quarter. Its French peers, Forvia and Valeo, are benefiting from this and are moving upwards on the Paris Stock Exchange.

In recent weeks, the automotive sector has been shaken by profit warnings issued by Volkswagen, Stellantis, Mercedes-Benz, BMW and Aston Martin.

Continental’s publication brings some comfort to investors worried about the health of the automobile industry. The German equipment manufacturer indeed communicated appreciated indications for its automotive activity on Tuesday evening, during a pre-closing conference call for the third quarter of 2024.

On the Frankfurt Stock Exchange, Continental occupies the head of the Dax, and jumped 6.7% to 59.62 euros after these announcements. The German group is leading in its wake French automotive equipment manufacturers such as Forvia, which is in pole position in the SBF 120 (+5.1%) or Valeo (+2.9%).

An improvement in the margin for the automotive division

For the period, the German group expects an improvement in its operating margin for its automotive division compared to the second quarter, despite a decline in turnover sequentially, estimated at 3% by Stifel.

Continental cites among the improvement factors, cost savings during the quarter, which are expected to exceed 150 million euros. The research firm therefore expects Continental to report adjusted operating profit (EBIT) of 185 million euros, with a corresponding margin of 3.8%, compared to 2.7% in the second quarter.

As for its tire business, Continental expects volume growth in the low single-digit range for the third quarter year-on-year. Stifel forecasts adjusted EBIT for this business of €490 million and a margin of 13.8%. “The margin for the second half should be comparable to that of the first half, with higher profitability in the third quarter of 2024,” continues the research office.

More generally, Continental’s results will also benefit from the payment of compensation of 125 million euros by its former subsidiary Vitesco Technologies, as part of the end of the prosecution of the Volkswagen group’s rigged diesel engine scandal.

However, these announcements are not likely to reassure Stifel. With an adjusted Ebit margin for the automotive sector of 0.7% over the first 9 months of 2024, the research firm considers it “unlikely” that Continental will achieve its annual target of 2.5% to 3.5%.

“Overall, we are reducing our adjusted EBIT streak by 7%/8.5%/8% for 2024-2026, putting us at +0.5%/0.5%/-3% per year. compared to the current VisibleAlpha consensus,” adds Stifel. Buying on the file, the research office nevertheless cuts its price target to 76 euros, compared to 85 euros previously due to the downward revision of its estimates for Continental.