BMW’s Preliminary Q4 Results Show Improvement as Chip Crunch Lessens

Narrow-moat BMW BMW reported preliminary fourth-quarter earnings per share of EUR 3.44, slightly below the EUR 3.51 FactSet consensus EPS estimate by EUR 0.07 but up EUR 0.04 from EUR 3.40 EPS reported last year. We surmise the bottom-line shortfall was due to a 36% drop in financial services profitability on higher refinancing costs and increased credit risk provisioning. The company reports full results next week on March 15. Automotive volume increased 11% as the chip crunch lessened, but automotive revenue jumped 38% on the consolidation of BMW Brilliance Automotive (formerly joint venture equity income), strong pricing, and favorable mix. Consolidated revenue increased 39% to EUR 39.5 billion from EUR 28.4 billion on the 38% automotive jump, a 42% pop in motorcycle revenue, and a 5% rise in financial services. Group revenue beat the FactSet consensus by about 5%.

Automotive EBIT was EUR 2.9 billion, jumping 52% from EUR 1.9 billion while margin edged slightly higher to 8.5% from 7.7% a year ago. Excluding the effects from the full consolidation of BBA, we estimate fourth-quarter automotive adjusted EBIT margin at 9.8%. Even so, due to increased interest rates and credit risk charges, financial services EBIT was EUR 536 million, down EUR 296 million or 36%, from EUR 832 million last year. As a result, group profit before tax rose 12% to EUR 3.3 billion from EUR 2.9 billion last year on the strength of automotive profitability. In our opinion, the 4-star-rated shares of BMW are attractively valued, currently trading at a 35% discount to our EUR 152 fair value estimate.