Automobiles
European trucks look ahead
European truck companies are bracing for an epic market downturn, but we believe
this may be already reflected in FY08 share prices. We initiate coverage of Volvo with
a Buy rating and of MAN and Scania with Hold ratings.
Key Forecasts
Reuters
code
Year
end Price Curr Rec.
Target
price
Potential
upside
FY08F
Div yield
FY08F
P/E
MAN MANG.DE Dec-08 31.3 € Hold 33 5% 11% 3.0
Scania SCVB.ST Dec-08 56 SKr Hold 60 7% 9% 5.1
Volvo VOLV.ST Dec-08 33.9 SKr Buy 50 47% 16% 5.3
Source: Company data, ABN AMRO forecasts
 
Market forecast
We don’t expect fundamentals to support earnings in FY09. We see the European truck market
falling 30% yoy, and other regions declining by a similar amount. North America is the exception,
where we forecast 13% yoy growth. We see a significant chance this market will rebound in
response to an expected stimulus package from the US government and a modest increase in
truck demand coming from the need for operators to replace their ageing fleets in line with the
upcoming EPA 10 emission regulations.
An examination of the cycle
Having analysed the Western European truck cycle of the last 20 years, it appears truck OEMs
have managed to expand geographical exposure and improve their manufacturing footprints, and
we believe they should also be able to deliver higher earnings over this market downturn.
Volvo – Buy, target price SKr50 per share
We arrive at our target price of SKr50 per share via our three-stage DCF, assuming a two-year
recession in the European truck market and some recovery of the North American truck market in
the next two years. We assume very low earnings for the remaining Penta, Aero and Construction
equipment divisions in FY09, with some signs of recovery in FY10. We believe the share price has
already built in most of the negative momentum for Volvo’s truck and construction equipment
divisions, with the stock trading at 0.3x EV/sales on our FY09 forecasts, which represents a
disproportionate discount, in our view, to Scania, which is trading at 0.8x EV/sales.
MAN and Scania – Hold
Both companies are under the influence of Volkswagen and have exposure only to the European
truck market. We take a very cautious approach on MAN. Although we see its share price trading
at 0.2 FY09F EV/sales, which taken alone would suggest a clear Buy, there is a risk of a lowpriced
takeover by VW that could hold back the share price.

Contents
Stock recommendations 3
European truckers are bracing for a very substantial market downturn, but we
believe this may already be reflected in FY08 share prices. We initiate coverage of
Volvo with a Buy rating and of MAN and Scania with Hold ratings.
Volvo – Buy, target price SKr50 per share: reasons to buy low 3
MAN – Hold, target price €33 per share 3
Scania – Hold, target price SKr60 per share 3
Global truck market forecast 4
We believe FY09 will be a challenging year, with a collapsing Western European
truck market, a modest recovery in North America and slower to declining markets
in the rest of the world.
European truck market 4
North American truck market 5
South American truck market 6
Asia Pacific truck market 7
A look at the cycle 11
We believe the FY09 cycle downturn will hit earnings of all three truck companies,
but believe margins will be held at a higher level in comparison with the last three
downturns.
Early 1990s market downturn 11
Early 2000 market downturn 11
Where do we think margins could go in the coming years? 12
When and what to buy 13
  
    
Company profiles
MAN 16
Scania 29
Volvo 38