Worries About China, Europe Behind The Fall.
BMW’s share price is on the slide – it’s down more than 10 per cent since the end of July – and its investment supporters are eager to remind shareholders that this doesn’t reflect any weakness in the company.
BMW Shares Dive
The fall in the share price, which gained momentum over the last couple of weeks, coincides with rumblings from China – that the license to print money there might not last forever – and worrying signs that Europe’s expected economic revival may have run its course.
BMW shares were close to €96 at the end of July, and by the end of September had dropped to around €85, although this was still ahead of the €80 of a year ago.
International Strategy and Investment (ISI) said estimates of BMW’s earnings are too low not too high, while the negatives overshadowing the fall won’t have much impact. ISI said the sell-off happened because of slowing confidence among E.U. businesses and consumers, while recent action by the Chinese government has triggered nervousness about the sustainability of the car sales boom there.
China provides around 30 per cent of BMW’s operating profit. In the second quarter, BMW raised EBIT (earnings before interest and tax) to €2.6 billion from €2.1 billion. The auto profit margin jumped to 11.7 per cent in the second quarter compared with 9.6 per cent in the same period of 2013. BMW’s long-term profit margin target is eight to 10 per cent.
On target
ISI said it believes BMW sales will increase eight per cent next year.
“This volume growth, largely thanks to new product introductions, in conjunction with costs control and slight FX (foreign exchange) tailwinds should lead to a stable 10 per cent autos margin. For the second half of this year we are forecasting autos EBIT margin to come in at 9.4 per cent,” ISI analyst Arndt Ellinghorst said.
“A key pillar for our call is BMW’s product momentum and balanced regional exposure. With a young SUV fleet – especially the new X4 and X6 – a new Active Tourer and 4 Series in addition to an entirely new Mini range, we can’t see how the momentum could be worse in 2015 versus this year. Our most recent conversations with Chinese companies and industry contracts suggest that the momentum for German premium autos brands should continue to be solid and even improve with financing becoming available,” Ellinghorst said.
Meanwhile not everybody was keeping the faith.
UBS Global Research said it was downgrading its recommendation on BMW shares to “neutral” from “buy”, but for the most positive of reasons.
“BMW remains in our view the best managed company among European (manufacturers) but the group’s earnings is the close to its peak among peers and therefore highly sensitive to any reduction in growth expectations,” UBS analyst Philippe Houchois said.
No comments yet.