Daniel Gladis presented his in-depth investment thesis on BMW (Germany: BMW) at European Investing Summit 2017.
BMW is a readily understandable business with a moat, managed in the interest of shareholders and attractively priced. It consists of two complementary businesses: automotive and financial services. The company sold 2.36 million cars and 145,000 motorcycle in 2016, up 72% and 45%, respectively, compared to 2006. Net income, EPS, and bo2ok value per share have grown more strongly over the same period, increasing by 140%, 139%, and 147%, respectively. Meanwhile, the price of the common and preferred stocks rose by 104% and 67%, respectively, from 2006-2016. Strong returns on capital and brand value reflect the moat of the business. On the ownership side, majority ownership of BMW has remained stable for a century. The company has done no overpriced acquisitions, taken no large asset write-downs, displayed no excess in terms of management compensation, and capital allocation has been good. Business risks include “peak auto”, BMW bank, electrification, autonomous driving, and interconnectivity.
Daniel’s sum-of-the-parts valuation suggests that the vehicle production business recently traded at 3.3x earnings and 48% of book value. Daniel bases this conclusion on a value estimate of €27.30 per share for the BMW bank business (€18 billion total value, or 1.6x book value, justified by an ROE of 18%) and €18.20 per share (€12 billion) of excess cash in the automotive segment. Subtracting the combined value of €45.50 per share from the recent equity quotation suggest a market value of €28.50 per share for vehicles production. Another way to look at the sum-of-the-parts valuation considers brand value of €30 billion, which may be added to automotive book value of €37 billion to imply automotive value of €67 billion. However, valuing the automotive business at 8x earnings suggests a value of €44 billion. As a result, Daniel puts the fair value of the auto business at roughly €55 billion. When added to the value of BMW bank and excess cash, the combined intrinsic value of the equity may be €85 billion, or €129 per share.
About the instructor:
Daniel Gladis, based in the Czech Republic, has amassed a market-beating track record since starting VLTAVA Fund in 2004. VLTAVA Fund is a value-oriented, research-driven investment fund focused on investing in good companies run by quality management. Previously, Daniel was Director and Chairman of the Board of Directors of ABN AMRO Asset Management (Czech) from 1999–2004. He was also Director and founder of Atlantik finanční trhy, a.s., a member of the Prague Stock Exchange. Daniel is a graduate of VUT Brno and has authored the best-selling book Naučte se investovat (Learn to Invest).
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