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Volkswagen's Risks May Be Overlooked Despite Press Disaster, Analyst Warns

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Volkswagen's Risks May Be Overlooked Despite Press Disaster, Analyst Warns

  • Shares of Volkswagen AG (ADR) (OTC: VLKAY) reached new 52-week lows of $22.71 on Friday.
  • Alexander Haissl of Credit Suisse commented in a note that downside risks are not fully priced in and that material risks are "likely to arise" from its Financial Services Business.
  • Haissl maintained an Underperform rating on the German-listed issue with a price target lowered to €82 from a previous €169.
  • Shares of Volkswagen's ADR traded to new 52-week lows of $22.71 on Friday as the issue has lost more than half of its value since its 52-week highs of $52.87. Investors and traders likely sold the stock following a cautious report by analysts at Credit Suisse.

    In a report published Friday, Credit Suisse analyst Alexander Haissl commented that the market is not discounting the "negative knock-on effects" following the diesel engine emission fiasco. The analyst noted that the final outcome for Volkswagen's recall costs and fines is "unclear" and could range from €23 billion to as high as €78 billion.

    Related Link: A Different Way To Bet Against Volkswagen

    Material Risks Possible

    Haissl continued that Volkswagen also faces "material risks" to its financial services business, which has "materially" expanded its balance sheet (close to €150 billion) to support growth.

    The analyst suggested that this risk may be "overlooked," as it will place pressure on the firm's capital ratio. At the same time, a balance sheet expansion without capital injection from the industrial business "looks more challenging."

    Net Cash Position May Be Insufficient

    Finally, Haissl pointed out that the company's industrial net cash position of around €25 billion is "unlikely to be sufficient" to cover potential recall costs and fines.

    The analyst also suggested that while the company attempts to spread costs over several years, its "biggest fundamental problem" remains a lack of cash flow generation with more than 80 percent stemming from China.

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    Latest Ratings for VLKAY

    DateFirmActionFromTo
    Apr 2018JefferiesUpgradesHoldBuy
    Nov 2016Goldman SachsUpgradesSellBuy
    Nov 2016HSBCUpgradesHoldBuy

    View More Analyst Ratings for VLKAY
    View the Latest Analyst Ratings

     

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