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BMW Profit Drive Peaks, But 2013 Should Still Be Solid

Capital Spending On The Rise, Led By Electric Cars

“BMW looks in good shape, with best in class growth in China and is probably less exposed to whatever is going wrong in Germany”

BMW’s accelerating profit growth is running out of road, but the bottom line will still show an impressive return for investors in 2013, despite big problems in Europe and worries about China.

In 2012, BMW’s operating profit margin was 10.6 per cent after 11.8 per cent in 2011, but the company expects this to decline slightly in 2013 to between eight and 10 per cent. Given that this is the range BMW has set for medium term profitability, investors were sanguine, not least because in 2013 capital expenditure for its upcoming “i” electric vehicles is hitting a peak. BMW will launch its little i3 electric city car later this year, and the i8 plug-in hybrid supercar in 2014. BMW also says it will introduce a total of 25 new models by the end of next year.

Credit Suisse analyst Erich Hauser still sees this slowing in profit growth as an impressive performance.

“BMW’s outlook for 2013 might not represent great performance relative to its recent track record but represents great performance in our view given the environment,” Hauser said.

Some investors were a bit more cautious.
Citi Research analyst Harald Hendrikse said slower global and especially European growth will inhibit BMW, as will increased competition which will pressure profit margins. The investment plan will increase by up to €1 billion in 2013.

“With China operating margins likely to slowly normalize also, we believe that guidance for 2013 for flat Automotive profit is likely a tougher target than some investors believe,” Hendrikse said.

Commerzbank analyst Daniel Schwarz estimates that BMW incremental capital spending will reach between €800 and €1 billion in 2013, which translates as seven per cent of sales, after 6.8 per cent in 2012 and 5.4 per cent in 2011.

Best investment
Bernstein Research analyst Max Warburton said BMW has the best investment case among German auto manufacturers.

“BMW looks in good shape, with best in class growth in China and is probably less exposed to whatever is going wrong in Germany,” Warburton said.

“BMW faces many of the same problems as Mercedes and VW/Audi – a slowing German/European car market, U.S. pricing pressure, mix shift to smaller vehicles, higher investment needs as well as a negative currency environment (there was a tailwind of €1 billion in 2012). However we see BMW as best placed amongst the German carmakers to cope with these challenges and expect it to continue to deliver strong earnings,” Warburton said.

 Neil Winton – April 2, 2013

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