BMW Said To Be In Great Shape To Weather Any Storms

“best margins, earnings growth, communication, long-term thinking, strategy and stock price performance”

BMW has been so successful recently, investors are literally swooning over it.

“BMW: I am falling in love with this company; just how dangerous will this prove,” said Bernstein Research analyst Max Warburton.

The ultimate danger of course would be objectum sexuality or objectofilia, when humans develop such love for objects that they marry them. Last year a Californian women married the Eiffel Tower, according to the BBC. But Warburton is worried that his so-called love for BMW might cause him to fail to recognise potentially fatal weaknesses in the company.

Warburton seems pretty far gone.

“We have a company (BMW) that not only makes the best products and technology – but also has the best margins, earnings growth, communication, long-term thinking, strategy and stock price performance. This company is a class act on all fronts,” Warburton said.

But he does have one caveat.

“At least if China holds,” he said.

“Gross profit per car in China remains huge, and on our calculations including parts sales must amount to almost 50 per cent of earnings,” Warburton said.

BMW’s global EBIT profit margin in its car business last year was 11.8 per cent compared with 8.0 per cent the year before. Late last month, BMW brought forward its sales target of two million cars a year to 2016, including Minis and Rolls Royces. Last year it sold 1.67 million vehicles.

More formal
Most other analysts share Warburton’s positive thoughts about BMW, although they express them in more formal terms.

“Five years ago, the current weakness in the E.U. car market would have caused significant problems for BMW. Yet today, the company remains more profitable and cash generative than ever. The structural change is thanks to a much lower cost base, global footprint and diversified product portfolio,” said Credit Suisse analyst Arndt Ellinghorst.

“We remain convinced that BMW will prove sceptics wrong and deliver strong earnings over time resulting in higher cash returns for shareholders,” he said.

BMW CEO Norbert Reithofer said at the recent investors press conference that EBIT earnings would be at the upper end of its eight to 10 per cent target range in 2012. That might be lower than 2011, but analysts point out that conditions in its important European market are weak.

Good defences
Morgan Stanley analyst Stuart Pearson said BMW has good defences against potential headwinds from big research and development costs and pricing.

“With supply set to remain tight, margins and free cash flow can remain at historically impressive levels for longer than consensus may think. On our analysis, BMW is likely to benefit from the highest utilisation (use) rate of any global manufacturer in coming years,” Pearson said.

Not quite objectofilia, but certainly a ringing endorsement.

There has been negative news about BMW recently. The company announced it was recalling about 1.3 million 5 and 6 series cars built between 2003 and 2010 to fix a potential fire hazard from wiring in the boot. No doubt BMW will turn this into a chance to reacquaint itself with buyers of older models, and sell a few more cars.

Neil Winton – April 2, 2012