On Tuesday, UBS expressed a more optimistic stance on Bayerische Motoren Werke AG (BMW (ETR:BMWG):GR) (OTC: BMWYY (OTC:BMWKY)), upgrading the stock from Neutral to Buy and increasing the price target to €83.00, up from the previous target of €75.00. The firm indicated a positive outlook on the automaker's financial stability and potential cash returns to shareholders.
The upgrade comes with an anticipation of a stable automotive EBIT (earnings before interest and taxes) margin for BMW and improved free cash flow (FCF) by 2025. UBS suggests that the consensus estimate for BMW's automotive margin, currently at 6.5%, aligns with their expectations. This assessment is based on the belief that the company's financial performance will remain robust, contrary to what may be expected for other original equipment manufacturers (OEMs).
During a recent North American roadshow, BMW's Chief Financial Officer remarked that automotive FCF may not be the sole determinant of the company's cash returns to shareholders. Building on this insight, UBS predicts that BMW could sustain a yield of approximately 15% through dividends and share buybacks in the coming years.
The analyst's commentary also addresses BMW's financial position, noting the company's significant net financial assets, which exceed €40 billion against a market capitalization of around €43 billion. UBS suggests that BMW's approach could, at least directionally, begin to resolve what is perceived as an inefficient balance sheet.
The upgrade by UBS reflects a confidence in BMW's capability to manage its financial assets effectively and to potentially reward its shareholders generously. This move by UBS positions BMW as their new top pick within the European automotive sector, while the firm has downgraded its ratings for competitors Mercedes-Benz (OTC:MBGAF) Group (MBG) and Porsche (ETR:P911_p) (P911) to Neutral.
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