Last Tuesday, February 14, the French company dedicated to tire manufacturing and tourism services, Cie Generale Michelin Establishments (ML: FP) , presented the results for the past year. During this period, the company’s turnover fell 1.40% compared to the year 2015. The company’s sales increased from 21,199 to 20,097 million dollar, while maintaining higher sales than the market, by 2.10%.
This contraction in sales was caused by a 4% decline in the manufacture and billing of tires of the heavyweight range in conjunction with those in the range of specialties. In addition, the car tire range, the most important for Michelin, increased its production by only 1%. On the other hand, the company itself has explained the reduction in turnover billed by two aspects. The first is the effect of currency exchange, affecting its imports and exports, and the second, by the increase in the prices of raw materials such as rubber, butadiene or crude oil.
In contrast, the net profits obtained by the company during the past 2016 have been very favorable, reaching a total profit of 1,667 million dollars. This figure is 40% higher than the year 2015, where the results obtained were 1,163 million dollars. This increase in profit has been mainly due to the improvement in the operating margin in the company’s accounts, even to the effect of reducing sales.
Due to these reasons, in The Logic Value we have decided to make an assessment of the gala company. For this, we have assigned estimated earnings per share for the end of 2017 of 8.30 dollars, lower than the one established by the market consensus. With respect to the long-term growth for said GAP, we set it at 1.69%. On the other hand, we place the Market Risk Premium and the Risk Free Rate for the company at 2.95% and 3.54% respectively. For its calculation has taken into account the data of the countries where the company invoices, being mostly European and North American.
With this data, at The Logic Value we obtain a target price for Michelin of 137.77 dollars, higher than its current quote price and with sufficient safety margin to have it in the portfolio.
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