* Adding Daimler — Following our strategists' recent upgrade of the Autos sector
and in line with our Auto analyst's positive stance on the space we add Daimler to
Citi Focus List Europe. Broadly, the sector is trading close to 2012 trough relative
forward P/E multiples while concurrently enjoying some of the strongest earnings
momentum in the market. With forward EV/sales of 29% and an EV/EBIT of 3.2x,
Daimler too is trading close to 2012 valuation levels. We do not believe Daimler has
been duly rewarded for its recent metamorphosis. In the past three years, Mercedes
Benz (MBC) has moved from premium segment laggard to leader – it is currently
enjoying the strongest volume growth and the best margins. We see more to come
given the recent SUV refresh and the upcoming launch of the new E-class. As for
North American truck, we think they will weather the downturn better than feared
and it is worth noting the shares of the freight carriers are up strongly in the last
month, c20%, which may be an early indicator of the trough in truck-buyer earnings.
In summary, sales momentum at MBC is strong and likely to stay strong, margins
are likely to hold up and the valuation is compelling. Also, if the market’s worst fears
are realised then it has a strong balance sheet with €18.6bn of net industrial cash.
The stock has a 16E dividend yield of 5.2% and the FCF yield is 5.7%.
* Stock Picking with a Strategy Overlay — The list contains European analysts’ 15-
20 strongest Buy ideas for the next 12 months. The focus is on bottom-up ideas
with analysts competing for inclusion. There is no limit on the time these may stay in
the Focus List. The list evolves as analysts’ conviction levels change.
* Liquidity, Actionability and Citi Edge — The Focus List highlights liquid names in
which investors can build positions. We believe that Citi analysts offer investors
strong views with differentiated analysis on Focus List stocks. Liquidity means some
names with higher return expectations are excluded.