Osram Licht AG

Germany-based Osram Licht AG (0QFR) is a lighting manufacturer company, which focused on semiconductor products for high-tech applications. The operations of the group are differentiated in three operating segments, namely Opto Semiconductors, Specialty Lighting, and Lighting Solutions & Systems.

Recent News
On 25^th September 2019,the company said in a statement that Bain Capital and Advent had indicated a willingness to bid a “meaningful” premium to the €38.50 per share takeover offer for all outstanding shares of OSRAM Licht AG.

Financial Highlights (Q3 FY2019, €million)

(Source: Company Website)

In the third quarter of 2019, the company’s reported revenue declined by 14.9 per cent to €850 millionas compared with the corresponding period of the last year, due to the market weakness in Automotive and General Lighting space and also with the downtrend in the China market. The reported EBITDA reduced by 66.2 per cent to €42 million in Q3 FY19against the €123 million in Q3 FY18. The EBITDA margin decreased by 820 bps to 4.9 per cent against the same period in 2018. The adjusted EBITDA margin decreased by 790 bps to 6.8 per cent in Q3 FY19 against the 14.7 per cent in Q3 FY18, due to negative volume effects. Net loss from continuing operations stood at €35 million. Diluted loss per share stood at €0.27against the earnings per share of €0.43 in Q3 FY18. The equity ratio decreased by 770 bps to 50.6 per cent against the 58.3 per cent in Q3 FY18.

Share Price Performance
 
Daily Chart as at October-08-19, before the market closed (Source: Thomson Reuters)

On 8th October 2019, Osram Licht AG shares were trading at EUR 39.20 at the time of writing before the market close (at 12:40 PM GMT), down by 0.25% against the previous day closing price. Stock's 52 weeks High and Low are EUR 41.81/EUR 24.63. The company’s stock beta was 0.68, reflecting the lower movement of the stock as compared to the benchmark index.

Conclusion
The company is still facing a challenging environment in the core markets and seeing no signs of recovery. Global economic indicators continue to slow down. The automotive sector remains on a sharp decline. At the same time, the countermeasures, that the company put in place earlier in the year, are starting to take effect. The guidance for the financial year 2019 was: the decline of comparable revenue between 11% and 14%, Adjusted EBITDA will be in the range of 8%-10%, and negative free cash flow between €50 million and €150 million

The company’s top-line performance and the bottom-line performance has declined for the period.The company operates in a challenging environment which requires continuous investment, sometimes at the cost of profitability, to stay ahead of competitors. Moreover, the company is trading near 52-week High, raising doubts at its upside potential at current prices. As the company operates in multiple geographies, its profits can be impacted negatively due to foreign exchange rate fluctuations. The company’s P/E multiple is significantly higher as compared to the industry multiple, reflecting overstretched valuations.
Based on the headwinds faced by the group, we have given an "AVOID" recommendation at the closing price of EUR 39.30 (as on 7^th October 2019).

Daimler AG

Daimler AG (0NXX) is a Stuttgart, Germany-headquartered automotive engineering company. The group is involved in the production, distribution, and development of trucks, vans, and cars in Germany, and the management of the Daimler Group. The operations of the group are differentiated in five operating segments, namely Daimler Trucks, Daimler Buses, Mercedes-Benz Cars, Mercedes-Benz Vans, and Daimler Financial Services.  

On 24^th October 2019, the company will announce the Interim Report for 3^rd Quarter 2019.

Recent News
On 7^th October 2019, the company announced the double-digit growth in sales from the China region.

Financial Highlights (Q2 FY2019, €million)

(Source: Interim Report, Company Website)

In Q2 FY2019, the company’s reported revenue increased by 5 per cent to €42,650 millionas compared with the corresponding period of the last year. In the second quarter of 2019, the Daimler group sold 821,700 cars and commercial vehicles worldwide, a decrease of 1 per cent from the previous year same period data. The company’s loss before interest and tax stood at €1,555 million in Q2 FY19from the profit of €2,640 million in Q2 FY18. For the second quarter of 2019, the net loss was €1,242 million. Net loss attributable to the shareholders of the company amounts to €1,328 million, a decrease from the net profit of €1,726 million in Q2 FY18. This represents a loss per share of €1.24, a decrease from the earning per share of €1.61 in Q2 FY18.

Share Price Performance
 
Daily Chart as at October-08-19, before the market closed (Source: Thomson Reuters)

On 8th October 2019, Daimler AG shares were trading at EUR 43.155 at the time of writing before the market close (at 12:40 PM GMT), down by 1.78% against the previous day closing price. Stock's 52 weeks High and Low are EUR 59.94/EUR 40.34. The company’s stock beta was 1.50, reflecting the higher movement of the stock as compared to the benchmark index.

Conclusion
The key leading indicators continued to deteriorate in the H1 FY19 period. The company’s current progress projections for international GDP (gross domestic product) in the financial year 2019 continue to be below the 3 per cent mark. The United States economy should maintain its growth at a marginally lower rate in view of the financial stimulus completion and the current normalization of the monetary policy.
In 2019, the worldwide demand for cars is expected to be marginally lower than in the last year period. The European market demand for car is also likely to be marginally lower than in the same period in 2018. Demand for heavy and medium-duty trucks is expected to be subdued. In the EU30 region, the company anticipate the market volume for buses to be slightly larger than in the previous year.
In 2019, the company’s group revenue is expected to grow slightly, and EBIT will be significantly lower than in the previous year. In the financial year 2019, the individual divisions have the following expectations for returns: Mercedes-Benz Cars (return on sales of 3% to 5%), Daimler Trucks (return on sales of 7% to 9%), Mercedes-Benz Vans (return on sales of minus 15% to minus 17%), Daimler Buses (return on sales of 5% to 7%), and Daimler Financial Services (return on equity of 17% to 19%). There will also be a negative effect of continuing high advance expenditure for new products and technologies.

The company’s top-line performance has improved in the Q2 FY19 whereas the bottom-line performance has declined for the same period.The company operates in a challenging environment which requires continuous investment, sometimes at the cost of profitability, to stay ahead of competitors. As the company operates in multiple geographies, its profits can be impacted negatively due to foreign exchange rate fluctuations.

Based on the headwinds faced by the company, we have given a "WATCH" recommendation at the current price of EUR 43.155 (as on 8th October 2019, before the market close), while any correction with support from few catalysts needs to be evaluated at a later stage.

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