|Shares Out. (in M):||656||P/E||8||0|
|Market Cap (in M):||52,000||P/FCF||0||0|
|Net Debt (in M):||0||EBIT||0||0|
The preferred shares trades around ~€69 so are priced at about one turn less on each metric. Many investors favor the preferred but since those shares will do well if the common does well I’m writing about the common here.
Alternatively, another way to think about this is that BMW has a market cap of ~€52bn and a tangible book value of ~€43bn. The majority of this TBV consists of the bank and net cash (~€24bn), so arguably one is paying ~€28bn for the car company which has ~€19bn in tangible equity and earned ~€7-8bn in EBIT last year. Just the brand BMW was recently valued as the 11th most valuable brand in the world, worth $41bn (Interbrand), and this is of course on the balance sheet for nothing.
All car companies trade at low multiples, as they probably should when global SAAR is already high, the traditional car business has headwinds, and the industry is cursed with terrible economics. BMW has its own unique headwinds which are significant (punching inventory to US dealers, too many cars on the lots, Benz models more stylish, 7-series design is a bust, upcoming R&D requirements for a multitude of near-mandatory developments, Tesla competing with German luxury, etc.). I think that these are extremely legitimate concerns and do not in any way push them aside as risks.
However, within auto OEMs I believe there is only one legitimately good business model - having some “sticker” which costs nothing but makes the car ~$3k-300k more valuable. To varying degrees I believe the valuable stickers are Benz, BMW, Audi, Porsche, Ferrari, Tesla and a few others. This is well known in the car business where luxury car companies produce a small minority of the cars; employ a very small proportion of the total capital; and make the large majority of the industry’s profit.
I will not call BMW a compounder but below is their ROE since 2002, which has normally been in the mid-high teens despite having excess cash on their balance sheet. It is un-controversial that their principal intangible asset (brand) is huge, and perhaps for this reason the business in the recent past has only traded materially below its tangible book value in 2008-2009.
Price/TBV Since 2003
Have ownership interest in BMW at the time of this write-up that can change at any time without notice. There are no plans to provide future updates on the authors buying or selling activities for this or other stocks. The author may buy or sell shares of BMW without notice for any reason at any time.
Cyclicality, brand degradation, Tesla upper/middle-market entrance, ever-increasing R&D requirements on a low total unit volume, etc.
No hard catalyst for this investment thesis except a growing value and net cash/share over time with the potential for a multiple re-rating.