European Report: There was disappointment yesterday for Volkswagen (VW) shareholders as a cautious outlook statement from Europe's biggest carmaker prompted its shares to fall 2.6 per cent to €36.38.
VW said that 2005 would be a difficult year because of weak trading conditions in Germany, China and the US. It added that operating profits for the first quarter "would not be satisfactory".
Morgan Stanley, which has an "underweight" rating on the stock, said: "In our opinion, the cautious language of the 2005 outlook statement reflects the reality of the current difficult market situation, macroeconomic headwinds and the intensifying competitive environment.
"We also believe a cautious outlook is necessary for VW to firmly grasp a sense of 'crisis' in order to execute a meaningful (and necessary) restructuring of its industrial operations."
However, there was better news elsewhere in the car sector.
BMW saw its shares gain 0.6 per cent to €33.31 after it said group sales rose by 7 per cent in February and that its prospects for 2005 remained positive.
In Paris, shares in Renault rose 0.7 per cent to €68.90 while PSA Peugeot Citroen slipped 0.2 per cent to €49.48.
"Both stocks offer better-than-average earnings growth, healthy balance sheets and proven management," said Morgan Stanley. But the broker said it favoured Peugeot. "Renault may offer more potential upside than PSA, but we believe at higher risk. PSA offers a better potential risk-adjusted return to investors, in our view."
Valeo, the French car parts maker, rose 2.3 per cent to €36.32 after it unveiled plans to buy back €250 million of its own shares through a €40-a-share tender offer.
"We wholeheartedly applaud these measures by Valeo to try and improve the market valuation of the group and improve returns to shareholders," said Credit Suisse First Boston. "On the back of this announcement, the shares should rise strongly towards the €40 proposed tender offer price. However, we do not believe that Valeo is currently significantly undervalued."
Overall, European blue-chips continued to ease back from the 33-month high achieved on Friday as oil prices remained strong and the euro rallied against the dollar.
The FTSE Eurofirst 300 index closed 0.6 per cent lower at 1,100.61. In spite of the decline, there was strong interest in the forthcoming stock market debut of the German pay-television group Premiere.
