February 12, 2015 / 12:36 PM / 3 years ago

TomTom wins second contract with Volkswagen, shares jump

AMSTERDAM (Reuters) - TomTom, the Dutch navigation equipment company, has won a second big contract with Volkswagen (VOWG_p.DE), this time to supply traffic software for the German carmaker’s European fleet, it said on Thursday.

A TomTom navigation device is seen in this photo illustration taken in Amsterdam February 28, 2012. REUTERS/Robin van Lonkhuysen/United Photos

The announcement and the company also saying it expects sales to grow in 2015 for the first time in five years sent its shares soaring more than 15 percent.

The company projected turnover of 1 billion euros (1 billion pounds) up from 950 million euros in 2014, implying growth of 5.2 percent.

TomTom said the new Volkswagen deal would be to deliver real-time traffic information to its cars “across Europe”, beginning with Audi and Volkswagen models.

The company did not supply financial figures, but a similar deal in January led to a reappraisal of the Dutch company’s prospects by many analysts.

By 1230 GMT shares were trading 14.9 percent higher at 6.75 euros ($8).

On Jan. 6 TomTom struck a deal with Volkswagen to supply maps for its in-dashboard navigation systems in its cars in the United States, replacing Nokia.

Volkswagen sells around 350,000 cars in the United States annually, but more than 10 times that number in Europe.

Spokesman Jan-Maarten de Vries said the new deal would cover about 2 million cars, as some models are not equipped with navigation equipment.

Analyst Marc Zwartsenburg of ING equity research said the latest deal was as important as the earlier one.

    He estimated TomTom’s traffic software sells for only a quarter as much as its mapping software, but Volkswagen’s European market is much larger. Also, the second deal raises the possibility of a deal with Volkswagen for maps in cars outside the United States.

    “What we said in January is ‘once you’re in, you’re in’, and this is the evidence,” he said.

    ING rates TomTom shares a buy.

    However, analyst Jos Versteeg of Theodoor Gilissen sees as a problem for TomTom long-term competition from Google, “which has a better product that it gives away for free”.

    “The share is overvalued and we repeat our ‘not recommended’ advice,” he said in a client note.

    TomTom reported fourth-quarter earnings that showed an adjusted net result of 9.7 million euros ($11 million), down from 13.6 million in the same period a year earlier. Sales fell 8 percent to 172 million euros.

    Reporting by Toby Sterling; Editing by Mark Potter and Susan Thomas

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