It's Not Over For Volkswagen; Deutsche Bank Downgrades 'Polluted' Stock

• Volkswagen AG (ADR) VLKAY has seen a 38.32 percent decline in its share price, year to date.
• Tim Rokossa of Deutsche Bank has downgraded the rating on the company to Hold, with a price target of €130.
• Although the stock might seem attractive following the company losing €30 billion in market value, Rokossa believes that the uncertainty related to the emission scandal would persist for some time.

According to the Deutsche Bank report, “1) the legal fines will be painful, impossible to quantify and potentially remain a topic for years & that 2) the impact on the operational business poses even higher risks for future cash flows.”

On Friday, September 18, Volkswagen had been slapped with a fine of $18 million when the US regulator found that the company had “misled regulators by equipping their engines with ‘hidden’ software” for 500,000 cars in the country

However, the company has now stated that 11 million cars were affected due to this issue, globally. “History has shown that with recalls the first ‘confessions’ are rarely the end of it,” Rokossa stated, while expecting the company to bear legal fees/residual impairment of about €5 billion.

Rokossa also believes that “the legal fees will be very painful but likely manageable as the effect is usually spread over several years,” and expects another €5 billion in non-core disposals.

However, what Rokossa believes is more a cause for concern in the mid-term is the impact on operations, with the impact on volumes, residual values, pricing and costs being difficult to estimate.

The EPS estimates for 2015-2017 have been significantly lowered to account for the legal fine, recall costs, lower growth and pricing pressure due to “brand damage.” “Any €1bn additional fine would take away €2.02 per share,” Rokossa added.