Summary of the Conference Call on Global Tyres Industry Industry Overview - The report focuses on the global tyre industry, particularly the performance and pricing strategies of major tyre manufacturers, including Michelin, Bridgestone, Pirelli, and Continental [2][7]. Key Insights Pricing Power and Market Dynamics - Major tyre manufacturers (Tier 1s) have significant pricing power, with prices increasing by approximately 25% since 2020 [2]. - Despite concerns about potential price gouging, analysis of tyre testing data indicates that current price premiums are comparable to those from five years ago, suggesting that pricing has not reached unsustainable levels [2][4]. - The correlation between tyre prices and quality scores from ADAC tests shows that Tier 1 brands can command prices above what their quality would imply, with Michelin and Pirelli pricing over 10% higher than their quality suggests [3][25]. Brand-Specific Pricing Power - Michelin and Pirelli have maintained the ability to price their products at double-digit percentage points above their quality over the past three years, demonstrating strong brand power [5]. - Continental has seen a decline in pricing power for its Tier 2 brands, while Bridgestone's Tier 2 Firestone brand has shown improvement, indicating a shift in strategy towards gaining market share [5][26]. Future Pricing Expectations - For 2026, positive like-for-like (LFL) pricing is expected across the industry, driven by the passing of tariff costs, although this will be partially offset by a projected 3% decline in raw material costs [6][83]. - The average weighted raw material basket for tyre manufacturers is anticipated to decrease due to falling rubber and oil prices [6][89]. Competitive Landscape - The report highlights a bullish outlook on competition within the tyre industry, with Tier 1 manufacturers offsetting volume losses with increased average selling prices (ASP) through premiumisation [7]. - There is little indication that low-cost competitors are catching up, reinforcing the strong market position of Tier 1 brands [7]. Company-Specific Ratings - **Michelin**: Rated Outperform, with expectations for margin expansion driven by premiumisation and restructuring. The company is positioned for significant cash returns due to low balance sheet leverage [9][10]. - **Pirelli**: Also rated Outperform, benefiting from structural tailwinds and potential resolution of governance disputes, which could lead to a significant rerating of its stock [10]. - **Bridgestone**: Maintained an Outperform rating, with expectations for returning 5% of its market cap next year through buybacks [11]. - **Continental**: Rated Market-Perform, with concerns about potential downside risks from the sale of its ContiTech division [12]. Additional Insights - The report emphasizes that the pricing strategies of Tier 1 manufacturers have not resulted in price gouging, as evidenced by consistent price premiums relative to quality since pre-inflation levels in 2020 [4][26]. - The analysis of tyre testing data from ADAC supports the conclusion that Tier 1 brands are effectively leveraging their brand and distribution power to maintain pricing integrity [25][61]. Conclusion - The global tyre industry is characterized by strong pricing power among major manufacturers, with a positive outlook for future pricing and market dynamics. The analysis suggests that Tier 1 brands like Michelin, Pirelli, and Bridgestone are well-positioned to capitalize on premiumisation trends, while Continental faces challenges that may impact its performance.

Summary of Key Points from the Conference Call Industry Overview - The report focuses on the **global tyre industry**, particularly major players including **Michelin**, **Bridgestone**, **Continental**, and **Pirelli** [2][19][26]. Core Insights and Arguments - **Positive Outlook for 2026**: The tyre sector is expected to benefit from a favorable setup, with conservative growth expectations and a shift from tariff shocks to a new reality that favors Tier 1 manufacturers [4][21]. - **Valuation Upgrades**: - **Michelin** is maintained as the top pick with a target price of **€38**, representing a **34% upside**. The company is expected to achieve margin expansion driven by premiumisation and restructuring [10][19]. - **Pirelli** is upgraded to **Outperform** with a target price of **€7**, indicating a **20% upside**. The resolution of governance issues is anticipated to unlock significant value [11][51]. - **Bridgestone** is also rated **Outperform** with a target price of **¥4,300**, reflecting a **22% upside** due to expected revenue growth from new technology [12][45]. - **Continental** is upgraded to **Market-Perform** with a target price of **€66**, indicating a **3% downside**. The valuation appears fair, but risks remain regarding the ContiTech sale [13][61]. Financial Performance and Expectations - **2025 Performance**: - Continental and Bridgestone delivered over **30% Total Shareholder Return (TSR)**, while Michelin underperformed with a **-37%** return due to weak commercial markets [3][20]. - **2026 Projections**: - The sector is expected to see EBIT margins increase year-over-year for the first time since 2021, with cash returns anticipated to rise across all players [4][21][27]. - Michelin's adjusted EBIT margin is projected to be **12.0%** in 2026, ahead of consensus estimates [31][36]. Risks and Opportunities - **Risks**: - Potential slower recovery in weak segments, governance disputes, and the risk of disappointing sales prices for assets like ContiTech [35][60]. - **Opportunities**: - The premiumisation trend in the tyre market is expected to continue, providing growth potential for companies like Michelin and Pirelli [6][50]. Additional Insights - **Market Dynamics**: The tyre industry is characterized by high EBIT margins (15-20%) and a significant portion of revenue coming from the aftermarket, which limits cyclicality [6][23]. - **Valuation Methodology**: The report suggests that the market will sustain higher multiples for the sector, with **8-9x EBIT** being justified based on historical performance [5][22]. Conclusion - The tyre industry is positioned for growth in 2026, with key players like Michelin, Bridgestone, and Pirelli expected to benefit from structural tailwinds and improved financial performance. The resolution of governance issues and continued premiumisation will be critical for unlocking value in the sector [19][50].

Group 1 - The company, Compagnie Générale des Établissements Michelin, has experienced a share price decline of approximately 11% since the last update [1] - Michelin is recognized as one of the largest tire manufacturers globally, indicating its significant position in the industry [1] Group 2 - The analysis is conducted by buy-side hedge professionals who focus on fundamental, income-oriented, long-term analysis across various sectors in developed markets [1]