Valuation BMW Group
BUSM31 – Strategic Financial Management|
Måns KjellssonDaniel Hedevåg
BMW is one of the ten largest automobile manufacturers in the world, with an annual production of 1.3 million cars (2009). It is furthermore one of the leading manufacturers in the premium car segment. BMW Group brand portfolio includes in addition to the BMW brand itself the Mini and Rolls Royce motorcars. The Mini brand is a remain from 1994 when BMW bought Rover and Rolls Royce was acquired in 1998 after a few years of engine cooperation. Besides the production of automobiles BMW is a well respected producer of motorcycles, with a production of 87.000 units in 2009. Business units sectioning
In our opinion BMW is a company which operates within two different business units; manufacturing and financial services. These units differ from each other and affect the value drivers differently. To get a fair valuation for BMW we have therefore chosen to make three different valuations, the third one being eliminations which represents the intra group transactions between the two business units. Regarding motorcycles, we have chosen to include them in the business unit we call manufacturing. For BMW, the sales of motorcycles contributed to 2,1% of annual turnover in 2009 which in itself does not constitute a large proportion of the annual turnover. It is our opinion that there are synergies in demand as well as revenues and costs that justifies including the valuation of the motorcycle part within the sales of cars and that it therefore is no need for a separate valuation of the motorcycles. Diagram 1 Sales of cars and motorcycles, Source: BMW Annual Report 2002-2009
We have chosen to compare key figures for BMW, Diagram 2: BMW cars sales in different markets. Source: BMW Annual Report 2003-2009 Daimler, Volkswagen and Toyota collected from Morningstar. In our opinion, the most comparable competitor is Daimler, which includes the brands Mercedes, Smart and Maybach. Daimler produced 1,055 million cars in 2009 and has the majority of its factories in Germany, just like BMW. Further, Mercedes is one of the main competitors of BMW with a strong brand in the premium car segment while smart is a competitor to Mini. The following chart describes the sales development for BMW within the last seven years. Worth noticing is how the sales peaked in 2007 with 1,5 million cars sold and how it has declined in overall numbers since then mostly due to declines in sales in Europe and America. The only market where sales have increased since the financial crisis is Asia and especially China and India.
BMW can be divided into subgroups that represent different segments within the car industry. There are primarily two different series that represents the largest part of the automobile manufacturers sales. The BMW 3 series is the worldwide leader within its segment of middle class cars and competes with cars like Audi A4 and Mercedes C class. This is the cash cow for BMW and generates almost 40% of the total Revenues. The larger 5 series competes with cars like Audi A6 and Mercedes E-class.
Comparing the Revenue Growth, Toyota and BMW excels, although Toyota have a major decline in revenue growth in 2009, whereas BMW and Volkswagen at least manages to decline sales by less than 10 percent. The fact that BMW with the highest percentage of premium cars sold has the lowest decline in annual turnover shows strength towards its competitors. Revenue Growth (total)| 2004| 2005| 2006| 2007| 2008| 2009| BMW| 6,77%| 5,24%| 5,02%| 14,32%| -5,04%| -4,73%|
Daimler| 4,11%| 6,15%| 0,96%| -34,56%| -3,06%| -17,99%| Volkswagen| 0,62%| 7,09%| 10,08%| 3,84%| 4,51%| -7,58%| Toyota| 11,32%| 8,54%| 14,36%| 13,36%| 9,04%| -21,40%|