Volkswagen downgraded to "reduce"

10/17/07 - AC Research

LONDON, October 17 (newratings.com) - Analyst Henning Wagener of AC Research downgrades Volkswagen AG (VOW) from "hold" to "reduce."

According to AC Research’s research note dated October 16 and published this morning, the company has been able to significantly increase its sales of the VW brand. In the first nine months of 2007, the global sales of Volkswagen vehicles were up 8.2% y/y, at 2.73 million units. The global sales of Volkswagen vehicles rose by 7.6% to 327,000 vehicles in September.

The analyst considers the published results as rather positive. In this context, the company benefited from a positive development of sales in China. Here, vehicle sales could be grown by more than 30% in 9M07. Volkswagen now aims at selling 900,000 cars in China in the full year of 2007. The analyst adds, however, that the market development in Germany is expected to be weak in the wake of the VAT tax hike and a rise in the costs of living. The entire European automobile industry witnessed a 1.5% decline in sales last month, but one should keep in mind that this September had one working day less in all of Europe than the same month last year.

A new sales incentive might be the launch of the Tiguan, which was initially scheduled for November 9 in Germany. Volkswagen has already received more than 10,000 preliminary orders for the all-wheel drive allrounder.

Another important date for Volkswagen is October 23, by when a decision will probably be made regarding whether the VW law is being overturned or not. Most of the market participants expect at least some of the major items of the VW law to be abandoned.

At Monday’s closing price of €179.29 and a 2008 P/E ratio of about 16, the company’s stock enjoys a rather favourable rating. In this respect, the stock already seems to have a somewhat ambitious rating, following the appreciation in the company’s share price over the past few weeks and the ongoing speculations of another increase in the number of shares held by Porsche.

AC Research downgrades Volkswagen from "hold" to "reduce."