BMW SHORT

Go Short: tailwinds turn into headwinds

BMW is trading as expensively as ever at 12x next years earnings. This despite poor guidance in mid April and increasing risks.

2015 guidance of ‘solid’ pretax profit growth, later confirmed as mid single digit growth, is a slowdown. This reflects the ongoing normalization of the Chinese market (20% of revs).

Feedback is that BMW are delivering a very cautious message on China.

Rising price competition, the lack of new products and localization of production not starting until next year are all issues, as is their selling parts in EUR.

Add to this the China Auto Dealers Association reported large inventory increases on the back of poor Q1 sales.

There is an argument that the stock is inexpensive vs the market. This may well be the case.

However it is not priced for misses. The stock is +30% YTD, and most likely the bulk of the EUR depreciation is done and in the price.

The ST drivers are to the downside for us.

We open a trading short into numbers.

We continue to be long Peugeot as our preferred Auto (since 18/02/14 +44%)