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March 21, 2014 4:29 pm
Motor racing is about performance over a given distance. In the battle between Germany’s luxury carmakers, BMW has been a clear winner for investors on the long track. Its shares have posted a five-year total return of 350 per cent, comfortably exceeding Daimler’s 260 per cent. Sales growth of 52 per cent in volume terms has been creditable vis-à-vis peers, such as Volkswagen’s Audi unit, although joint ventures complicate direct comparisons.
But BMW’s momentum has eased off recently. On a one-year view, Daimler shares have produced a 56 per cent return, almost double BMW’s 30 per cent. So this week’s upbeat presentation from BMW was timely – especially since it forecast “significant” rises in 2014 sales volumes and pre-tax profits. Consensus estimates had suggested that the latter might be flat. BMW shares rallied 10 per cent.
So should investors consider switching cars? Daimler’s recent acceleration owes much to its Mercedes-Benz models finally hitting a sweet spot in the product cycle. Margins at the Stuttgart-based group should continue to benefit as sales of refreshed S, E and C class saloons kick in and gaps in the SUV segment are also addressed. For once, too, Daimler’s heavy truck business – a quarter of group sales – seems to be improving in sync.
BMW has new products of its own to offer, including an expanded SUV range and the next-generation Mini. But its automotive operating margins are in cruise mode: 9.4 per cent last year, against Daimler’s 6.2 per cent, and forecast to be 8-10 per cent in 2014. More positively, however, last week’s presentation did suggest that BMW may be near the top of its capital spend/R&D cycle. It already has a strong balance sheet – more than €12bn net cash at year-end. So with solid cash flow likely by 2016, speculation about a special dividend to mark its centenary year is rife.
Competitors, of course, are revving: Fiat is pushing its luxury brands (Maserati, Ferrari, Alfa Romeo), and Audi has narrowly outsold BMW (ex-Mini) in 2014’s first two months. Continued growth in China’s luxury market will also be key, although there are few signs of this flagging. So the drag race goes on. But expect BMW to start making up some ground.
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