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Daimler AG DDAIF – US OTC. Olivier Fontenelle 10/30/2013. Main Business Lines. Key future success drivers. Significant product launches Recent revenue and profit growth N ew China strategy Positive macro environment “Turnaround story”. Recent Results.

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daimler ag ddaif us otc

Daimler AGDDAIF – US OTC

OlivierFontenelle

10/30/2013

key future success drivers
Key future success drivers
  • Significant product launches
  • Recent revenue and profit growth
  • New China strategy
  • Positive macro environment
  • “Turnaround story”
recent results
Recent Results
  • September sales were all time highs: 142,994 vehicles WW
    • Driven by sales of E-Class, A-Class and CLA-Class
  • 5% YoY increase in Q3 revenues
  • 53% YoY rise in Q3 profits
new products
New Products

Automotive industry is highly cyclical, the development schedule drives sales. MB is in the middle of a huge product refresh, with highly competitive vehicles.

cla and gla
CLA and GLA
  • Both based on new small compact platform, shared with A and B class. 90% YoY WW increase for the class.
  • CLA - $29,900 starting price, the first car >30k for MB.
    • Audi A3 was pricing reactionary, matching CLA.
  • GLA – small crossover to take on high volume market
    • Competing with BMW X1, Audi Q3, Range Rover Evoque
  • “Gen Y – appeal”
s class
S-Class
  • Top of the line model, highest profit margins
  • Extremely positive industry reviews
  • 30,000 sales in 3 months! 2012 sales of “only” 65,000 cars.
  • Expected to be #1 in class by a wide margin.
problems in china
Problems in China…

“Mercedes-Benz has struggled in China since the start of 2012, when overall demand for luxury cars began weakening amid an economic slowdown in the world's second-largest economy that affected luxury car brands in general.

Mercedes fared worse than most because of a dearth of new or redesigned models and what industry insiders and key operators of Mercedes-Benz dealers described as a short-sighted volume grab that hit the brand's profitability.

Mercedes-Benz's sales rose just 4 percent to 206,150 cars, last year. By contrast, sales of Audi cars rose 32 percent to 407,738 cars, while BMW's volume increased 41 percent to 313,638 cars.”

new china strategy
New China Strategy
  • Goal: Boost sales to 300,000/annually by 2015

How?

  • $2+ billion investment in China-based manufacturing:
    • 70% cars sold in China to be made in China by 2015. (cost reduction)
    • Includes GLA
    • By comparison, Audi builds 90% cars it sells in China, in China.
  • 12% equity investment in BAIC -> planned IPO
  • Doubling dealer network from 100 to 200.
the macro environment
The macro-environment
  • European economy is rebounding, and care sales are following.
  • “The situation is clearly improving,” Carlos Da Silva, a Paris-based analyst with IHS Automotive, said in an e-mail. “Europe is not in brilliant shape, yet the underlying trend of the market is calling for a certain dose of optimism.”
  • “Investor confidence in Germany, Europe's biggest economy and largest car market, rose to a three-year high this month. Consumer confidence in the UK, which ranks second in the region's car sales, was at a six-year high in September.”
mb international exposure
MB International Exposure

Strong growth in UK (+28%), Turkey (+31%), Russia (+20%), China (+26%)

Still #1 in Germany with 9% market share. #1 in Japan (+32%)

why not other automakers
Why not other automakers?

Mercedes is coming back from the bottom. They:

  • Had declining sales
  • Had the lowest profit margins of the major luxury brands.
  • Lost the ultra-luxury war (RIP Maybach).
  • Declining quality perception.
  • Missed the boat on China, especially to Audi.
  • Not been #1 since 1999
    • Currently beating BMW by ~2500 cars in the US. #3 Lexus by 25,000
important indicators
Important Indicators

Q3 Sales

MB Cars: up 14%, Trucks: up 4%, Vans: up 17%, Buses: 17%

Profit Margins:

  • Q1 2013 Profit Margin: 3.4% (one time costs included)
  • Q2 2013 Profit Margin: 6.6%
  • Q3 2013 Profit Margin: 7.3%

Long-term target: 9-10%

Audi/BMW ~ 10%+

EBIT

YoY growth of 15%

financial indicators and proposal
Financial Indicators and Proposal

TTM P/E: 10.16

Forward P/E: 14.76

PEG: 10.58

Proposal:

~$3000 or 37 shares

*OTC Trade poses little/no risk thanks to the high liquidity of DDAIF

risks
Risks
  • China is very competitive. They could flounder their new strategy and not catch up with Audi and BMW.
  • Global macroeconomy is still not stable, especially in Europe. China poses macroeconomic risk.
  • New entry-level products could erode short term profit margins more than expected, and will not be offset by sales volume.
  • Truck demand could decrease due to weak heavy industry demand. India is down >10% YoY, and Russia is missing forecasts in this business unit.