President Trump to tax EU cars?

WWL 05.03.2018 kl 08:54 1058


WALLENIUS WILHELMSEN LOG. President Trump to tax EU cars? President Trump tweeted on 3 March about a potential “tax on European cars which freely pour into the US”. If this were to happen, we believe it would be a significant negative for Wallenius Wilhelmsen Logistics (WWL), as the company’s shipments from the EU to North America account for 18% of its volumes. We downgraded WWL to HOLD on 19 February, after its Q4 results, believing that the “risks are skewed towards the downside”.
President Trump tweeted about a potential tax on European cars. According to the Financial Times on 3 March, “Donald Trump has fired back at EU threats to retaliate against his planned tariffs on imports of aluminium and steel, declaring he would simply target the European automakers if that happened”. President Trump tweeted “if the EU wants to further increase their already massive tariffs and barriers on US companies doing business there, we will simply apply a tax on their cars which freely pour into the US”.
18% of WWL’s volumes are exports from the EU to North America. According to WWL’s overview of its foundation trades, WWL exported 3.4cbm from the EU to North America in Q4 (or 18% of its volumes), showing its vulnerability if potential higher taxes were implemented, which would have a potential negative effect on volumes.
A 3.3% volume decline would equal USD106m of lost revenues, we calculate. In our Q4 review of WWL, we said consensus was too optimistic on the upcoming volume decline from Korea forecasting flat earnings QOQ in Q1. We calculated that a decline in exports from Hyundai/Kia from 50% to 40%, effective in Q1 2018, would equal an annual volume decline of 3.3% (or USD106m of revenues) that would need to be replaced with new volumes. Hence, potential lower volumes from the EU to the US if President Trump’s weekend tweet became reality would temporarily result in lower vessel utilisation and a suboptimal trade mix with a negative impact on earnings.
We downgraded to HOLD in February, on: 1) the share price being close to an alltime high; 2) the risks being skewed to the downside; 3) consensus not fully reflecting lower Korean volumes for 2018; 4) a trade imbalance and a continued suboptimal cargo mix; 5) antitrust-related potential negative impact on freight rates; and 6) a higher oil price.