Thursday 22 May 2014

Analysis of BMW 2014

A German automobile & motorcycle producer

Company: BMW

Business: A German automobile and motorcycle producer. They have three units which are: BMW (also motorcycle, and the production is almost completely in Germany), Mini and Rolls-Royce (both are still produced in the UK). In cooperation with Sixth they also have DriveNow which is a car sharing system and you pay 29 ct/minute of driving. The drivers are frequently going above speed limits to pay as little as possible.

Active: They are actively selling their cars all over the world but still the main bulk of production is either in Germany or in the UK (due to Mini and Rolls-Royce)

P/E: 10.8

Here you can find the previous analysis of BMW.

contrarian values of P/E, P/B, ROE as well as dividend

The P/E is fully acceptable for BMW with 10.8 (and very similar to last year) and the P/B has improved slightly to 1.6 which gives us a clear buy from Graham just like last year. The earnings to sales are good with 7% and the ROE, which has unfortunately dropped a little, is now at 15% which is good but I would prefer them to go back to the previous value (almost 18%) or even higher! The book to debt ratio is not so nice with 0.4 but they have made a substantial improvement there! In the last six years they have had a yearly growth rate of +6.1% which is excellent but 2013 they had decreased revenue compared to in 2012. Still this gives us a motivated P/E of 17 to 21 which means that BMW is still undervalued by the market. They pay a good dividend of 3% which represents only 32% of their earnings so it should be possible to keep that running.

Conclusion: Graham still say yes to this company and I tend to lean more towards him. The P/E is excellent, the P/B is still too high but they have improved it, the ROE is still really good and the dividend is fully ok! I will however still not go for it. Am I too scared of cyclical companies?

If this analysis is outdated then you can request a new one.  


Chris Bailey said...

Wise to be a little cautious of cyclical companies I would agree. Shame I cannot attach a (debadged) note I wrote a couple of weeks ago on the stock. The key conclusion was:

'Clearly there is no crisis here and (as noted in the original March note) the stewardship of the Quandt family combined with the growth of premiumisation / emerging market demand gives plenty of scope. Looking forward there are a number of new launches that will kick in over the rest of the year (Mini, 2 Series, 4 Series) which will assist sales. Additionally a relatively conservative outlook (‘substantial’ profits growth but cautious single digit margin guidance vs 11.5% in Q114) is still apparent.
Back in March the conclusion on the shares was that ‘Trading at just over x8 EV/ebit (a x1 point premium to its great peer/rival Daimler) with a 5% free cash flow yield (from which a 3% dividend is paid) and a relatively modest Euro12bn of debt (less than a quarter of market cap), the company is undoubtedly a safe counter. It does not feel that cheap though – that comes more in the sub Euro75 zone’.
With the new models driving (no pun intended) medium-term earnings scope the ‘consider buying more price’ is raised to Euro80 (prospective sub x7.5 EV/ebit multiple) but at prevailing the share is still in take profits mode'.

So I am waiting for that Euro80 level!

Fredrik von Oberhausen said...

Hi Chris,

you can always link things by using classical HTML coding in these comment fields.

< a href="url">Link text< /a>

remove the space between the < and the a and the < and the /a> and it will work.

Thanks for your comment Chris!

Yes, BMW is a healthy company that is doing very well and I hope one day to be a shareholder. I have to admit that I love the look of the BMW.