Scania AB (SCVB), the Swedish truckmaker controlled by Volkswagen AG (VOW), fell to its lowest level in three weeks in Stockholm trading as UBS AG cut its earnings forecast by half on an expected slump in demand in Brazil.
The stock lost as much as 5.7 kronor, or 4 percent, to 135.9 kronor, its lowest price since July 3. It traded 3.9 percent lower as of 9:55 a.m. local time, with trading volume at 43 percent of the daily average in the past three months.
UBS today downgraded its recommendation on Scania shares to sell from neutral and cut its 12-month share-price estimate to 100 kronor from 130 kronor. UBS also reduced its earnings estimates for 2014 and 2015 by 50 percent and 35 percent, respectively.
“We believe that truck demand in Brazil will fall sharply from current levels,” Fredric Stahl, an analyst at UBS in Stockholm, said in a note. “The truck cycle has disconnected from the wider economy plagued by lower growth, inflation and waning confidence. Uncertainty going into the election next year and an increase in real funding costs for truck purchases are possible triggers for a drop in demand in our view.”
Scania reported a 77 percent increase in truck order bookings in Latin America in the first six months of this year to 11,542 vehicles, driven by Brazil and Argentina. The region accounted for 30 percent of Scania’s truck orders in the period and was the second-biggest market after Europe.
While Soedertaelje, Sweden-based Scania booked 2,300 trucks a quarter on average in Latin America before the global financial crisis, it saw orders of about 5,800 in the second quarter even as economic growth rates have fallen, mining has rolled over, investment growth has declined, the stock market has dropped 35 percent and the Brazilian real is down 30 percent, UBS’s Stahl said.
“This disconnect is unsustainable and with the Scania share only 5 percent below its post-crisis high, there is, in our view, little Brazil risk priced in today,” said Stahl.
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