BMW reports improvement in Europe

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1 BMW - STRONG BUY BMW reports improvement in Europe This company was selected on the basis of Jyske Quant. Jyske Quant is a model that rates companies based on a string of factors. In that way, the model comes up with a total score that indicates whether the share is currently a good investment or not. This is a noncomplex product Prior to the official opening of the Geneva Motor Show, BMW's CEO, Norbert Reithofer, and sales director, Ian Robertson, have today talked to the media. This resulted in a string of interesting comments. We have summarised the most important ones below: The first sign: BMW has seen the first positive signs of improved market conditions in Europe. However, the development is not equally positive in all countries. BMW expects improvement in the UK, Spain and Germany. On the other hand, market conditions in France are difficult. Growth in 2015: For 2015 BMW considers it likely that the European car sales will return to growth. Since the start of the financial crisis in 2008, we have only seen positive growth in car sales in i3 got off to a good start: The demand curve for BMW's new i3 electric car is strong and the order book now covers the production for the coming six months. CEO Norbert Reithofer even stated that the demand for i3 may expand the capacity of 40,000 in i8: BMW commented that its US BMW dealers are upbeat on demand for the i8 model. This is the first indication that the electric sports car is selling well. No need for own battery capacity: Contrary to Tesla, BMW does not see any need to start its own production of batteries. It has a good cooperation with a high-volume supplier. BMW estimates that the battery Quant info Shar e infor m ation Q uant scor e 7,3 Number of stocks (mill.) 602 Valuation 8, 5 High/Low last 12 months 86/64 Valuation relative 8, 3 Price movements 3/12 months 1%/13% Financial strenght 7, 7 - relative to index 3%/-13% Quality 6, 1 Market cap (mill. EUR) Momentum 6, 4 Free float 53% Performance 4, 6 Avr. daily volume (mill.) 123 Sector Cons. Descre. Fundamental valuation Cheap Risk Medium News flow Positive 12-month target price Current price 80.4 Reuters BMWG.DE Bloomberg BMW GR Equity JB sec. code Pr ice tr end 90 BMW DAX m a m j j a s o n d j f Source: Jyske Bank & Datastream Jyske Markets, Vestergade 8-16 DK-8600 Silkeborg Senior Analyst, Equity Research, Robert Jakobsen jrj@jyskebank.dk Assisting Equity Analyst, Christoffer Thimsen christoffer.thimsen@jyskebank.dk Important investor information: Please see the last page

2 technology will develop fast in the coming years, which is beneficial for the largest suppliers that can dedicate their development resources. SGL Carbon: BMW rejected speculations that it considers to increase its stake in SGL Carbon. There is currently insufficient Carbon capacity in the global market. Future driver: Despite the early success of the i3, BMW does not take it for granted that electric cars will be the major winner in the future. It may just as well be fuel cells or another technology that is not yet invented. Hence, BMW's strategy is to have a wide approach to meet future requirements. Please note that BMW and Toyota are working together in respect of developing fuel cell engines. China: In 2014 China is particularly to drive BMW's growth. BMW expects to sell more than 2m cars in 2014 against 1.96m in All in all, we see the announcements from BMW as moderately positive, supporting our STRONG BUY recommendation. 2

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4 Disclaimer & Disclosure Jyske Bank is supervised by the Danish Financial Supervisory Authority. The research report is based on information which Jyske Bank finds reliable, but Jyske Bank does not assume any responsibility for the correctness of the material nor any liability for transactions made on the basis of the information or the estimates of the report. The estimates and recommendations of the research report may be changed without notice. The report is for the personal use of Jyske Bank's customers and may not be copied. This report is an investment research report. Conflicts of interest Jyske Bank has prepared procedures to prevent and preclude conflicts of interest thus ensuring that research reports are being prepared in an objective manner. These procedures have been incorporated in the business procedures covering the equity research activities of Jyske Markets, a business unit of Jyske Bank. Moreover, equity analysts at Jyske Bank cannot trade in equities for which they prepare research reports. If an analyst takes over for the responsible analyst in connection with illness, business travels, etc., this analyst cannot trade in the relevant share on the day of publication of the research report and the following day. Jyske Bank may, however, hold positions, have interests in or business relations with the companies that are analysed. The research report has not been presented to the company prior to its release. Analysts receive no payment from persons interested in individual research reports. Read more about Jyske Bank's policy on conflicts of interest at Jyske Bank s share recommendations current allocation Allocation of recommendations, Danish shares (number) Allocation of recommendations, all shares (number) Strong Buy Buy Reduce Sell 0 Strong Buy Buy Reduce Sell Source: Jyske Bank Financial models Jyske Bank employs one or more of the following models: Discounted cash flow (free cash flow), Economic Value Added and the dividend model to determine the fundamental value of a company. The fundamental value is compared to a relative valuation based on multiples such as P/E and EV/EBITA. The recommendation and the price target are moreover adjusted for the expected news flow and the market sentiment based on knowledge of the industry and company-specific circumstances. Jyske Bank s recommendations take into account the expected development in the equity market, the various sectors and company-specific circumstances. Risk Investment in this share is associated with a risk. Movements in the equity market, the sector and/or news flows, etc. regarding the company may affect the price of the share. See the front page of the research report for our view of the risk associated with the share. The risk factors stated and/or calculations of sensitivities in the research report are not to be considered all-encompassing. If the share is traded in a currency other than the investor s base currency, the investor accepts an FX risk. In connection with an ADR or similar papers, the FX risk exists relative to the currency in which the underlying share trades. Update of research report The planned update of the report will be prepared immediately upon the release of the company s financial statements. In addition, research reports may be prepared on special themes specifically for the company or research reports where the company is part of the special theme. These research reports are published on an ad-hoc basis. See the front page for the initial date of publication of the report. All prices stated are the latest closing prices before the release of the report, unless otherwise stated. 4

5 Recommendation Risk-adjusted return Strong Buy >20% Buy 10-20% Reduce 0-10% Sell <0% Source: Jyske Bank Share recommendation concepts Our recommendations are relative to the market development and are based on an evaluation of the forecast return within the coming 12 months. The forecast return is the difference between the current price and our 12-month price target (the price target includes the projected dividend). The equity market has historically yielded a return of around 10% (the US equity market, for instance, yielded a return of 10% during the period ). When we determine the recommendation for a share we use the 10% as an estimate of the return in the equity market. Since our recommendations are relative and risk-adjusted, it is possible to compare our recommendations across sectors and risk categories. In addition, the potential is stated in absolute terms via our price target. It should be borne in mind, however, that the recommendation is the anchor. A BUY recommendation will remain a BUY recommendation until changed, even if price increases have taken the price too close to the price target. The future and historical returns estimated in the research report are stated as returns before costs since returns after costs depend on a number of factors relating to individual customer relations, custodian charges, volume of trade as well as market-, currency- and productspecific factors. It is not certain that the share will yield the stated expected future return/s. The stated expected future returns exclusively express our best assessment. Risk classification definitions: Green products are products for which the risk of losing the invested amount is regarded as insignificant provided the investment is held to maturity. The product type is simple to grasp. This category includes Danish goverment and mortgage bonds. Amber products are products for which there is a risk of losing the invested amount partially or fully. The product type is simple to grasp. This category includes equities traded in regulated markets, mutual fund units and certificates. Red products are products for which there is a risk of losing more than the invested amount, OR product types which are difficult to grasp. This category includes structured bonds, hedge funds, options and forward exchange contracts. 5