Volkswagen: Bank of America maintains its 'buy' rating

(CercleFinance.com) - Bank of America maintains its "buy" rating on Volkswagen, after the German auto giant yesterday unveiled the details of its annual five-year capex schedule.


The brokerage points out that the carmaker aims to increase its capex for digitalization and software from 14 billion euros to 27 billion euros by 2025, a rise of nearly 100% compared to its previous level.

VW also said that it expects to generate an EBIT margin of 6%-7% by 2022, BofA noted, saying that the consensus might have been "a bit disappointed" about these targets.

"In a nutshell, we believe that some investors may have hoped for slightly higher earnings targets, given that VW generated 7.6% EBIT margin in 2019," the brokerage said.

However, with the group planning to spend around 73 billion euros on electrification, hybrid powertrains and digital technology over the next five years, BofA thinks it's "positive" that VW aims to achieve tech leadership.

Its equity case, hence, remains unchanged with Bank of America saying that if VW becomes successful with its electric vehicles (EVs), 6x P/E valuation is "too low."

BofA has a target price of 162 euros for VW's preference shares and 173 euros for its ordinary shares.

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