BMW’s Q4 Results Continue Improvement, Issues 2023 Guidance; FVE Increased to EUR 156

Narrow-moat BMW BMW reported 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. 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, despite the chip shortage, the Ukraine crisis, higher raw material costs, logistics disruption, and other inflationary cost pressures. Excluding the effects from the 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 EBIT.

Management’s 2023 guidance includes slightly higher automotive volume and automotive EBIT margin at 8%-10%. We forecast a 3% increase in 2023 automotive volume, a 2% increase in consolidated revenue, and an 8% industrial EBIT margin due to the risks from continuing headwinds. We raised our fair value estimate to EUR 156 from EUR 152 due to the time value of money. The 4-star-rated shares of BMW trade at an attractive 39% discount to our new fair value estimate.