Morningstar | BMW Reports 2018 Preliminary Headline Results; Maintaining EUR 117 FVE
Narrow-moat-rated BMW, maker of premium-brand Mini small cars, premium-brand BMW passenger vehicles and motorcycles, and ultra-luxury-brand Rolls-Royce automobiles, reported preliminary headline numbers for 2018. The company usually issues year-end headline financial results in a press release in mid-March. It will release more details on its 2019 outlook and a full set of 2018 financial statements on March 20 followed by an investor day presentation March 21.BMW's 2018 results were roughly in line with our forecast. Consolidated revenue, which includes financial services, declined 0.8% to EUR 97.5 billion compared with EUR 98.3 billion last year (all prior-year figures were restated for first-time application of revised IAS 15). Record volume of 2.49 million units represented a 1.1% increase from the prior-year delivery volume of 2.46 million. Operating profit declined 7.9% to EUR 9.1 billion from EUR 9.8 billion reported a year ago. Despite the negative impacts from exchange rates, international trade conflicts, higher raw material costs, Worldwide Harmonised Light Vehicle Test Procedure in Europe, and higher warranty reserves, the result was the second-best profit performance (behind 2017) the company has ever reported.
Once we have the full set of financial statements and roll our discounted cash flow model to the new historical year, we think our fair value estimate could increase around 2% due to the time value of money component in our model. We continue to forecast a 7.7% normalized sustainable midcycle industrial EBIT margin, excluding joint venture equity income, 30 basis points below management's 8%-10% target and 130 basis points below BMW's 9.0% 10-year historical median margin. Our midcycle margin assumptions reflect increased spending for powertrain electrification and autonomous technologies. Even so, this 4-star-rated stock is attractively valued, currently trading at a 37% discount to our EUR 117 fair value estimate.
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