BMW Of Germany Expected To Continue Hot Profit Streak – Forbes
German premium car maker BMW’s profits go from strength to strength, and investors are only divided by the amount of exuberance they show about the company’s future.
Leading the cheering is Arndt Ellinghorst, analyst with International Strategy and Investment (ISI) in London.
After underestimating BMW’s first quarter performance, Ellinghorst expects profitability to continue to grow because of its new model programme and cost management.
Earlier on Tuesday, BMW reported first quarter operating profit otherwise known as earnings before interest and tax (EBIT) rose three per cent to 2.09 billion euros ($2.9 billion) compared with the same period of 2013 as sales gained four per cent to 18.2 billion euros ($25.4 billion). Automotive margin was 9.5 per cent. BMW’s long-term goal is for profits between eight and 10 per cent. In the first quarter, German rivals Mercedes made a seven per cent margin while VW’s Audi Audi earned 10 per cent.
BMW said sales gains were led by its SUVs including the compact X1, mid-size X3 and big new X5. BMW retained its forecast for 2014 that EBIT will gain significantly, as new models like the 4-series Gran Coupe and 2-series compact reach global markets.
This led Singapore-based analyst Max Warburton of Bernstein Research to wonder what “significant” really means. Warburton, on the more realistic side of exuberance, said today’s results suggest numbers for the year will be fairly modest even if acceleration gains ground, pointing to the slower growth in sales compared with the profit gain. Premium Car Maker BMW Of Germany Expected To Continue Hot Profit Streak – $BMWG.DE
“Our conclusion (after the latest figures) is that what BMW defines as “significant” may not be enough to excite the (stock) market in 2014. BMW is a formidable company enjoying strong profitability, but we believe there are now better (investment) opportunities in the sector,” Warburton said.
London-based Harald Hendrikse of Nomura is impressed.
“BMW remains the best in class, and protected by its premium-only brand exposure. China remains the risk in the ointment,” Hendrikse said.
China provides around 30 per cent of BMW’s operating profit.
Analysts have been wondering if a reckoning is at hand in China, after years of spectacular growth generally and massive profits for the car manufacturers. BMW sales in China last year were worth 15.3 billion euros ($21.1 billion), VW and Audi 23 billion euros ($31.8 billion) and Mercedes 10.7 billion euros ($14.8 billion). If current weakness in China’s currency was sustained for instance, this could slice between two and four per cent off German car makers EBIT this year, analysts reckon. That wouldn’t be a problem. It’s a meltdown of the banking system in China which scares investors, and that apparently isn’t imminent.
ISI’s Ellinghorst expects BMW’s global profit margin to rise to 9.6 per cent in the first half of 2014, to 9.7 per cent in the second half, and 10.0 per cent in 2015. He said BMW’s model lineup is keeping it ahead of the competition.
“BMW has the youngest fleet out of the premium makers, thanks to the recent launch of the 3-series (small sedan) and X5 as well as additional new models including X4, 4-series, 2 series Active Tourer and Project “i” vehicles,” he said.
The 2 series Active Tourer is BMW’s first minivan, and front wheel drive vehicle, with technology borrowed from the new Mini. BMW is currently launching the i3 electric car in the U.S. and will soon introduce the i8 plug-in hybrid sports car.
“Indeed, given BMW’s advantage today, the company is set to continue to have the youngest fleet through 2015 and a competitive fleet in 2016 ahead of the launch of the 5-series (mid-size sedan) in late 2016/early 2017,” Ellinghorst said.
BMW also owns Rolls Royce cars, the British-based super luxury brand.