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Upside Risk?

02 April 2019 by jbchevrel

Daimler AG (DAIGR) is tighter -4bp today, 11bp below Mar 20 close, 38bp below c2c YTD wide. Aside from macro market direction, DAIGR specific risks include 1/ the suggestion of emission wrongdoing including the unresolved US DoJ investigation ongoing since 2016 2/ potential for US-imposed tariffs. President Trump said he wanted auto tariffs would be >0, one could think that after US/CN talks end the Eurozone is next in line. Although the consensus thinks BMW is the most exposed to this threat, they think that could shave off c10% DAIGR’s EBITDA. If the US/CN negotiations are anything to go by, we could see an initial move to 25% tariff by the US, before reaching some truce. 3/ European truck litigation is not over, in the sense that trucks manufacturers have already paid fines for their role in fixing prices but they are now facing potential claims from the people who paid too much 4/ new allegations of cartel building among the German automakers. Der Spiegel had reported that the EU is preparing to fine each €1B. 5/ According to Bloomberg calendar, we get EU27 March new passenger car registration on Apr 17. It might be a catalyst, key to gauge European demand, as March tends to be the biggest month for sales volumes. Mar-2018 had printed -5% YOY. 6/ It seems fair to say that guidance change risk remains, given challenging conditions for the sector and upcoming management change (incl. CEO and CFO, effective May-2019 but announced since Sep-2018) at DAIGR. Finally, on a relative value basis, DAIGR looks at the tight end of the range vs its German peers. Indeed, DAIGR is -33bp tight to VW, vs a 1y range of [-40bp,-5bp]. DAIGR is only 11bp wide to BMW, vs a 1y range of [8bp,27bp].