Continental: In the Fast Lane

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  Christian Ingerl
  Redaktor

In the Tour de France, a hand’s breadth of rubber often makes the difference between victory, a crash, or losing seconds. That’s exactly where Continental is currently highly visible: The company is the main partner of the Tour de France, which has just begun, and several UCI WorldTour teams rely on handcrafted Continental bicycle tires. What sounds like high-performance technology in professional cycling goes straight to the heart of Continental’s new story. After all, rubber is not only a key material in the peloton, but will also be the group’s defining factor on the stock market in the future.

Strategic Restructuring

Continental has just reached the most significant milestone in its strategic realignment with the sale of ContiTech to the private equity firm Lone Star Funds. The agreed-upon enterprise value is EUR 4.0 billion, plus potential performance-based payments of up to EUR 250 million. After customary adjustments, Continental expects a cash inflow of approximately EUR 3.1 billion. Of particular interest to shareholders: Approximately EUR 2.5 billion is expected to be returned to shareholders upon completion of the transaction, either through a special dividend or a combination of a special dividend and share buybacks. This turns the “breakup” speculation into cold, hard cash. The deal is expected to close before the end of this year.

This brings Continental closer to the goal the capital market has been demanding for years: transforming the opaque conglomerate into a clearly focused tire manufacturer. Following the spin-off of the Aumovio automotive division and the sale of the OESL business, ContiTech is the next major division to be divested. What remains is a business model that is easier to evaluate. While tires are cyclical, they are more resilient than many traditional automotive supply sectors. The replacement tire business ensures more stable demand, and premium products offer room for profit margins. Continental forecasts revenue of EUR 13.2 to 14.2 billion and an adjusted EBIT margin of 13.0% to 14.5% for its core Tires business in 2026.

Positive media coverage…

The first quarter showed that the forecast is currently holding up. The tire division posted revenue of EUR 3.3 billion, and adjusted earnings of EUR 522 million exceeded market expectations. The next test will come on August 4 with the second-quarter results. Analysts are expressing cautious optimism. UBS maintains its “Buy” rating with a price target of EUR 90, JPMorgan sticks with “Overweight,” and Deutsche Bank Research sees the upcoming quarterly results as a potential positive driver for the stock price. Analysts at Kepler Cheuvreux also confirm their “Buy” recommendation, pointing to visible margin improvements, strong free cash flow generation, and the expected capital returns following the ContiTech deal.

…and rising prices

On the stock market, unlike many German auto stocks, Continental isn’t moving backward—it’s stepping on the gas. In early July, the DAX-listed stock even hit a new three-year high. For investors, this means that anyone looking for a turnaround story is probably too late. On the other hand, those looking for a more focused industrial company with solid cash flow, the potential for special returns for shareholders, and room for margin growth will find Continental to be a promising buy.

Investment solutions

In the event that the DAX stock continues to be on a “hot streak,” bold investors can also trade the Mini Future ICOBPZ from ZKB. The multiplier is 5.1, and the stop threshold at EUR 59.9932 is just under one-fifth of the current level. The Unlimited Turbo Warrant (ISIN DE000FE5A0X2) from Société Générale has even more momentum. The leverage here is 5.9, and the barrier is at EUR 63.2700.

In the event that Continental decides to take a breather, the Barrier Reverse Convertible FALOJB from Julius Bär would be a suitable solution. The product offers a sideways return of 8.0% per annum with a reassuring buffer of 43%. The BRC matures in May 2027.