BMW Investors New Products 2015
“we remain confident that this is merely a near-term hiatus until new product arrives”
BMW’s profit performance in the first quarter looked good on the surface, but closer analysis showed bottom line gains owed more to factors outside its control than in-house qualities.
Investors reckoned any short-term problems are likely to be banished soon, as the ageing model portfolio is renewed.
The sharp fall of the euro on foreign exchange markets gifted profit to BMW. Analysts worried about China, and also pointed to the superior performance of Daimler’s Mercedes-Benz.
In the first quarter, BMW earnings before interest and taxes (EBIT) rose to €2.52 billion from €2.09 billion in the same period of 2014. BMW said this reflected stronger demand in the U.S. and Europe for models like the big X5 SUV, offsetting slowing sales growth in China. BMW’s automotive profit margin at 9.5 per cent was similar to last year’s, while Mercedes margin jumped from seven per cent to 9.2 per cent. Audi’s profit margin slipped to 9.7 per cent from 10.1 per cent in the first quarter.
BMW’s long-term target is for profits between eight and 10 per cent.
Analysts said the increase in profits was helped by foreign exchange gains, meaning that the unchanged margin pointed to growing problems in the business. BMW didn’t reveal information about its foreign exchange transactions.
Barclays Equity Research analyst Kristina Church said BMW offered investors solid long-term prospects, especially after key model momentum gains pace.
Waiting for 7-Series
“While BMW has plenty of new niche products to help smooth peaks and troughs in its cycle, mix is likely weak near-term and until key series launches come, we think (Mercedes) will have the edge on volume growth. The all-new 7-Series due to be unveiled later this year will be key as it marks the start of new styling for the other series ranges too. For full earnings lift from new product we think investors most await the new 5-Series in late 2016,” Church said.
“With product cycle a clear drag in China, we think fears over a more complete collapse in China earnings will weigh on the stock, although we remain confident that this is merely a near-term hiatus until new product arrives,” Church said.
“We also think the weaker euro continues to benefit BMW as a net exporter and note that the peak for technology spending has likely passed and cash should therefore build from here,” she said.
The Wall Street Journal’s “Heard on the Street” column agrees that new product is key for BMW.
“BMW’s predicament should begin to turn around next year after a new version of the X1 (compact SUV) is released, followed by the new generation of 7-Series and then 5-Series. Mercedes is in the sweet spot of its product cycle, while BMW’s is yet to kick in. When it does, that should help the latter accelerate,” said “Street” columnist Thao Hua.
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