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Well this is awkward, I bet when Daimler hatched the idea to spin off its truck division from the rest of Mercedes Benz, they thought that they were taking a weight off Merc which was going to race off into the exponential-stock-increasing-distance, whilst Daimler Truck (OTC:DTRUY) plodded along in the slow lane of the autobahn. Well, if Aesop taught us anything, it was that “slow and steady wins the race” and that clearly seems to be on display here. Not that the two entities are in any sort of competition, Mercedes Benz still owns 35% of Daimler Truck.
Q1 results
Let’s start by diving into the numbers. When we analysed Mercedes Benz a couple of weeks ago, we noted that, though they had increased revenue, unit sales were down overall. Daimler Truck bucks this trend posting an increase in unit sales: 109,286 in Q1 2022 compared to 101,364 the year before (+8%), and also an increase in revenue: €10,551 million compared to €9,023 million the previous year (+17%). This continued all the way to adjusted EBIT which came in at €651 million compared to €588 million in the previous year’s 1st quarter, an increase of 11%.
The Group revised its guidance for the fiscal year 2022, increasing revenue expectations from €45.5 – €47.5 billion at the end of 2021 to €48 – €50 billion, citing positive effects from exchange rates and improved net pricing as the key drivers. As a consequence, the guidance for Group EBIT has also increased from “slight decrease” compared to 2021 to “at prior year level”.
“The trend in the truck markets was not significantly influenced by the Russian-Ukraine war in the first quarter of 2022. However, the availability of semiconductors affected truck production, meaning that demand could not always be fully met.” Stated the group in their report, “In addition, fossil fuels and raw materials, which Russia and Ukraine are important producers of, have become significantly more expensive. These price increases have impacted both businesses and households, accelerating the rise in inflation rates observed since the middle of last year… The deteriorating economic conditions have not had a significant impact on economic growth in the first quarter of 2022, but we expect significant effects for 2022 as a whole”
The megatrend
In our previous coverage of the stock, we were bullish on Daimler Truck citing it as a direct play to the global megatrend of electric vehicles / fuel cell electric vehicles and autonomous driving. Important developments this quarter included the signing of a letter of intent by Daimler Truck North America in partnership with NextEra Energy, and BlackRock, to expand the infrastructure for BEV and FCEV commercial vehicles in the USA. Daimler Truck has also begun the creation of a “holistic eco-system” to ensure the best possible entry of its customers into e-mobility, including comprehensive consulting services and charging infrastructure.
Conclusion
We remain bullish on the stock thanks to its ties to a key global trend, in the meantime if the Company keeps beating expectations, we are more than happy. We value the company with an EV/EBITDA of 6.75, a value which is on par with truck builders but still miles behind certain US competitors who are banking on the BEV megatrend in terms of valuation. We rate the stock with a buy and maintain our target price of 38 euros per share; a 35% gain at the time of writing.
