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Thyssenkrupp break-up plans face economic, financial hurdles in 2019


By Christoph and Tom Käckenhoff

FRANKFURT/DUESSELDORF (Reuters) - faces risks ranging from economic uncertainty to cartel fines in 2019, potentially complicating a planned of the German company's capital goods business which has so far left some investors unconvinced.

Shares in have fallen 26 percent since September when it bowed to long-standing pressure to separate its elevators, and plant engineering from steel, naval vessels and metals distribution, lagging German, European and global stocks.

While the break-up plan is backed by the von foundation and Cevian, Thyssenkrupp's two biggest shareholders, other investors question whether it will solve the German conglomerate's bigger problems.

"Overall, I still don't see how will get anywhere," said Thomas Hechtfischer, managing director of group DSW, which represents 1 percent of the group's voting rights at its annual general meeting.

"2019 won't be the only transition year for the group. I suspect there will be quite a few," he said of the turmoil at Thyssenkrupp, whose left as a result of the sustained investor disquiet.

Some analysts say fears of a global economic downturn as well as potential fines over alleged cartel agreements in could also hit a time of already stretched finances.

"Balance sheets will be an area of focus in a more severe industrial recession scenario. We see Thyssenkrupp as particularly vulnerable," wrote.

Rating the stock "underweight", has set a target price of 14.50 euros per Thyssenkrupp share, 10 percent below where its stock was trading on Thursday.

One top-20 shareholder, who declined to be named, said Thyssenkrupp's management still needed to prove that the break-up will result in a smaller, more agile set-up, adding: "Simply announcing a breakup doesn't change anything."

Thyssenkrupp, whose AGM is scheduled for Feb. 1, plans to get most of the break-up work, including a legal separation as well as top management appointments, done this year before shareholders are to approve the split in a year's time.

"The two entities will still be a disparate collection of businesses lacking synergies ... the split entities will continue to present challenges for investors to forecast and value with a likely discount to valuation," Morningstar said in a note.

The main sticking point is uncertainty over Thyssenkrupp's elevator and businesses, the core of the planned spin-off, partly because of an automotive industry downturn.

"The sceptical investor might worry that group management hasn't asked enough difficult questions about how margin expansion and/or order book growth has been achieved," a top-40 shareholder, who also declined to be named, said.

(Additional reporting by in London; Editing by and Alexander Smith)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Thu, January 10 2019. 22:23 IST