DGAP-News: Silvia Quandt&Cie. AG, Merchant&Investment Banking: In-between the lines – Bernhard Eschweiler

DGAP-News: Silvia Quandt&Cie. AG, Merchant&Investment Banking /
Schlagwort(e): Sonstiges
Silvia Quandt&Cie. AG, Merchant&Investment Banking: In-between the
lines – Bernhard Eschweiler

20.12.2011 / 14:29

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– More of the same for Euro area in 2012

– Corporate strength is key support for German economy

The second year of the Euro debt crisis is coming to an end and yet another
year of uncertainty probably lies ahead.

– A draft of the new EU fiscal pact is scheduled for release by the end
of the week. Ratification by EU countries will take several months,
however. Some countries may even have to call for a referendum.

– EU finance ministers have pledged more than EUR170 billion to beef up
the IMF. Efforts are also underway to give the EFSF more teeth and get
the ESM up and running by mid 2012. Yet, that may not be sufficient
and lead to fresh calls for more funds.

– Focus will shift back to individual countries– fiscal consolidation
efforts with Italy in the spotlight. Pushing through the budget was
already a struggle but Germany and the ECB expect Italy to do more.

– All this will happen against the background of increased sovereign and
banking-sector refinancing needs in the first quarter of 2012 and
possibly more downgrades by rating agencies.

The prospect of prolonged uncertainty will be torture for financial
markets. Policymakers, especially German chancellor Merkel and ECB
president Draghi, however, are unlikely to yield to market pressure soon.
They believe the Euro system is more resilient – which has proven to be
correct so far – and want to use the opportunity to push through fiscal
governance reform. Financial market participants have not been impressed
by the outcome of the last EU summit. There was too little in terms of
stabilization measures. In hindsight, however, the December eighth summit
may well turn out to have been the turning point. The outcome of the EU
summit has been an important achievement for the German government.
Chancellor Merkel is unlikely to turn soft quickly, but that kind of
progress will increasingly allow her to support additional stabilization
measures, including more ECB interventions.

Sailing against the wind

Debt crisis and the tough fiscal policy response are bad news for growth.
The Euro area most likely entered recession in the fourth quarter. In
fact, some countries already contracted in the third quarter. German GDP
may also fall in Q4, but that will be more due to statistical distortions
than underlying weakness. Best proof is the IFO survey, which actually
improved slightly in November and December. The IFO survey (a combination
of strong current business conditions and cautious expectations) is
consistent with growth moderation but not recession. Of course, that may
change, but we remain optimistic that Germany will avoid recession.

First, the global cyclical environment is improving. Final demand, led by
retail sales, is accelerating, most notably in the US. In contrast, output
is held back by inventory adjustments. This is most visible in Asia, where
production is further interrupted by the impact of the Thai floods. On the
other hand, policymakers in emerging markets, notably China, are shifting
from inflation fighting to growth promotion. Next year may start slow, but
the combination of low inventories and firmer demand is the perfect
cocktail for a production bounce.

Second, Germany is the main beneficiary of easy monetary conditions in the
Euro area. As we pointed out before, the Euro is very competitive from the
perspective of German exporters. Furthermore, German households are not
overleveraged and can take advantage of extremely low real interest rates.
A housing boom is unlikely, but the IFO index provides again proof that
construction is experiencing a pickup.

The third support factor is the strength of the corporate sector. To be
sure, firms in most OECD countries are doing better. The difference is
that corporate strength in Germany is broad based. German firms are not
just competitive because of cost cutting, as is the case in the US. Firms
in Germany operate in a competitive environment, thanks to earlier reforms.
As a result, German firms can spend part of the restructuring dividend,
which is visible in the labor market.

Corporate strength means economic resilience

The latest Bundesbank monthly report and the recent BVR report on mid-sized
companies illustrate the structural progress of the German corporate sector
in general and the so-called Mittelstand in particular (see all four
charts). Profitability has returned to the pre-crisis level. More
important, there has been a structural lift in profit margins from below 4%
of sales in the 1990s and early 2000s to above 5% of sales since 2006. A
key factor has been the reduction of labor cost, thanks to more flexible
employment conditions and improved productivity. Mid-sized companies also
managed to use structures and equipment more efficiently, which is visible
in reduced depreciation charges. Structural gains are also evident on the
balance sheet. The share of equity has increased by more than two thirds
for all corporates and has more than quadrupled for mid-sized companies.

Correspondingly, the dependence on bank funding has declined significantly.
For large companies, bank funding has become almost negligible. For
mid-sized companies, bank funding is still important, but much less so than
10 years ago.

Editorial note

This is the last issue of In-between the lines in 2011. The next issue
will be published on January 13, 2012.

Merry Christmas and a Happy New Year!

Disclaimer

This analysis was prepared by Bernhard Eschweiler, Senior Economic Advisor,
and was first published 20 December 2011, Silvia Quandt Research GmbH,
Grüneburgweg 18, 60322 Frankfurt is responsible for its preparation. German
Regulatory Authority: Bundesanstalt für Finanzdienstleistungsaufsicht
(BaFin), Graurheindorfer Str. 108, 53117 Bonn and Lurgiallee 12, 60439
Frankfurt.

Publication according to article 5 (4) no. 3 of the German Regulation
concerning the analysis of financial instruments (Finanzanalyseverordnung):

Number of recommendations   Thereof recommendations for issuers to which

from Silvia Quandt Research investment banking services were provided

during

GmbH in 2011                the preceding twelve months

Buys: 106                   35

Neutral: 35                 6

Avoid: 10                   0

Company disclosures

Article 34b of the German Securities Trading Act (Wertpapierhandelsgesetz)
in combination with the German regulation concerning the analysis of
financial instruments (Finanzanalyseverordnung) requires an enterprise
preparing a securities analysis to point out possible conflicts of interest
with respect to the company or companies that are the subject of the
analysis. A conflict of interest is presumed to exist, in particular, if an
enterprise preparing a security analysis:

(a) holds more than 5 % of the share capital of the company or companies
analysed;

(b) has lead managed or co-lead managed a public offering of the
securities of the company or companies in the previous 12 months;

(c) has provided investment banking services for the company orcompanies
analysed during the last 12 months for which a compensation has been or
will be paid;

(d) is serving as a liquidity provider for the company–s securities by
issuing buy and sell orders;

(e) is party to an agreement with the company or companies that is the
subject of the analysis relating to the production of the recommendation;

(f) or the analyst covering the issue has other significant financial
interests with respect to the company or companies that are the subject of
this analysis, for example holding a seat on the company–s boards.

In this respective analysis the following of the above-mentioned conflicts
of interests exist: none

Silvia Quandt Research GmbH, Silvia Quandt&Cie. AG, and its affiliated
companies regularly hold shares of the analysed company or companies in
their trading portfolios. The views expressed in this analysis reflect the
personal views of the analyst about the subject securities or issuers. No
part of the analyst–s compensation was, is or will be directly or
indirectly tied to the specific recommendations or views expressed in this
analysis. It has not been determined in advance whether and at what
intervals this report will be updated.

Equity Recommendation Definitions Silvia Quandt Research GmbH analysts rate
the shares of the companies they cover on an absolute basis using a 6 –
12-month target price. –Buys– assume an upside of more than 10% from the
current price during the following 6 – 12-months. These securities are
expected to out-perform their respective sector indices. Securities with an
expected negative absolute performance of more than 10% and an
under-performance to their respective sector index are rated –avoids–.
Securities where the current share price is within a 10% range of the
sector performance are rated –neutral–. Securities prices used in this
report are closing prices of the day before publication unless a different
date is stated. With regard to unlisted securities median market prices are
used based on various important broker sources (OTC-Market).

Disclaimer This publication has been prepared and published by Silvia
Quandt Research GmbH, a subsidiary of Silvia Quandt&Cie. AG. This
publication is intended solely for distribution to professional and
business customers of Silvia Quandt&Cie. AG. It is not intended to be
distributed to private investors or private customers. Any information in
this report is based on data obtained from publicly available information
and sources considered to be reliable, but no representations or guarantees
are made by Silvia Quandt Research GmbH with regard to the accuracy or
completeness of the data or information contained in this report. The
opinions and estimates contained herein constitute our best judgement at
this date and time, and are subject to change without notice. Prior to this
publication, the analysis has not been communicated to the analysed
companies and changed subsequently. This report is for information purposes
only; it is not intended to be and should not be construed as a
recommendation, offer or solicitation to acquire, or dispose of, any of the
securities mentioned in this report. In compliance with statutory and
regulatory provisions, Silvia Quandt&Cie. AG and Silvia Quandt Research
GmbH have set up effective organisational and administrative arrangements
to prevent and avoid possible conflicts of interests in preparing and
transmitting analyses. These include, in particular, inhouse information
barriers (Chinese walls). These information barriers apply to any
information which is not publicly available and to which any of Silvia
Quandt&Cie. AG and Silvia Quandt Research GmbH or its affiliates may have
access from a business relationship with the issuer. For statutory or
contractual reasons, this information may not be used in an analysis of the
securities and is therefore not included in this report. Silvia Quandt&Cie. AG and Silvia Quandt Research GmbH, its affiliates and/or clients may
conduct or may have conducted transactions for their own account or for the
account of other parties with respect to the securities mentioned in this
report or related investments before the recipient has received this
report. Silvia Quandt&Cie. AG and Silvia Quandt Research GmbH or its
affiliates, its executives, managers and employees may hold shares or
positions, possibly even short sale positions, in securities mentioned in
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particular may provide banking or other advisory services to interested
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its affiliates nor any of its officers, shareholders or employees accept
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herein may fluctuate and/or be affected by changes in exchange rates. Past
performance is not indicative of future results. Investors should make
their own investment decisions without relying on this publication. Only
investors with sufficient knowledge and experience in financial matters to
evaluate the merits and risks should consider an investment in any issuer
or market discussed herein and other persons should not take any action on
the basis of this publication.

Specific notices of possible conflicts of interest with respect to issuers
or securities forming the subject of this report according to US or English
law: None

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in Articles 19, 47 and 49 of the Financial Services and Markets Act 2000
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Frankfurt am Main, 20.12.2011

Silvia Quandt Research GmbH
Grüneburgweg 1860322 Frankfurt
Tel: + 49 69 95 92 90 93 -0
Fax: + 49 69 95 92 90 93 – 11

Ende der Corporate News

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20.12.2011 Veröffentlichung einer Corporate News/Finanznachricht,übermittelt durch die DGAP – ein Unternehmen der EquityStory AG.
Für den Inhalt der Mitteilung ist der Emittent / Herausgeber
verantwortlich.

Die DGAP Distributionsservices umfassen gesetzliche Meldepflichten,
Corporate News/Finanznachrichten und Pressemitteilungen.
Medienarchiv unter http://www.dgap-medientreff.de und
http://www.dgap.de

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150439 20.12.2011

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