Michelin (CGDE)
An emblematic value through its history and its unique value offer, Michelin is a qualitative value on the French coast. The company has a wide range of tires produced and marketed all over the world. In this sense, it is less vulnerable to currency fluctuations. Michelin has a dominant position in special tires for industry and bicycles with higher margins than its competitors. The relatively regular replacement of tires by users makes Michelin a not so cyclical value as one might think.
Outperformance ratings:
The company released good numbers recently in Q1 2022, slightly above expectations. Executives are confident for 2022, positive forecasts have been confirmed and margins should continue to increase this year. Sales growth was 19% over a rolling year, largely thanks to the price effect of +13.5% to offset the rise in raw materials (+11.9%). The current macro-economic situation in Ukraine weighs relatively little on the company. The Russia-Ukraine conflict had a limited impact on first quarter volumes. Russia represents 2% of consolidated sales.
Technical Analysis Chart:
Nokian Renkaat OYJ (TIRES)
Nokian Renkaat is a Finnish stock with much less pricing power than its competitor. It is the leading Scandinavian tire manufacturer and sells mainly to the replacement market (and not to OEMs). The 2022 and 2023 financial years could bring complications for this company.
Outperformance ratings:
Passenger car tires are mainly produced in Russia at low cost and heavy duty tires in Finland. Import/export bans will lead to downward revaluation of assets while increasing the risk of external pressure to relocate production capacity to Europe (although the company opened a new US plant in 2020 to fuel expansion in North America). Nokian could see its margins melt like snow in the sun in 2022. The results for Q1 2022 were very disappointing. The lack of visibility associated with much more fragile fundamentals makes it a dream prey for a long/short arbitrage as we are proposing to you today.
Technical Analysis Chart:
Arbitration can be carried out between Michelin (long position towards €135) and Nokian Renkaat (sell position towards €11), representing a potential gain of nearly 30% currently.
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