Tuesday, 3 November 2015

Even more European numbers (UBS, Royal Dutch Shell, BMW)

Lots and lots of numbers out today.  After my earlier post reviewing occurrences at Weir Group, Imperial Tobacco and Standard Chartered (link here) a few more thoughts.

First UBS.  I tweeted out earlier the observation that:

: slowdown in flows from Asia but margins sort of ok in WM division. My view: high teens value not at CHF20

In terms of level I derive this from noting the 15%+ target RoE...

...which suggests to me better value below the CHF18 level which is also a level where the company has also exhibited some support:


I also note that even applying the most ultra cautious Swiss National Bank model UBS is currently still at a 12%+ tier one ratio. Relative quality but wait for the right price in my view. 

As for Royal Dutch Shell I wrote up the numbers at length last week (link here) where I concluded it was 'hard not to see value'.  Today the company has published a 'management day' presentation with some further updated thoughts.  A few key slides in my view:

A lot of headlines will be taken by the boost in 'verified synergies' from Shell's combination with BG Group which is clearly a positive for deal rationale...


...especially as new projects coming on stream are moving aggressively into positive net free cash flow generation over the next couple of years: 

The combined LNG franchise is also in my view a real structural positive albeit the scope for some shorter-term price volatility in this space continues.  

Net net holding/buying Royal Dutch Shell or BG (cheaper way given given the discount the stock is trading at as I noted here) still makes sense to me. 

And finally BMW.  I noted on Twitter that: 

numbers fine in the wider scheme of things. Nice chart re surprising reality of auto sales momentum YTD

Still, as hinted above, the company's 2015 numbers hopes were reiterated.   


In terms of a few notes from the conference call I observed that:

9m revenue record

‘key financials are a result of a high demand for our products and services’

October continued to be a good month

‘business environment is facing many challenges…China…new models offset this’

‘we have changed the strategy in China…slowing prices…have to take care’. New car sales tougher, so more emphasis financing products, aftermarkets, second hand etc.

‘strategically adhere to legal restrictions…compliance guidelines…corporate and legal culture crucial for this’

‘focus always been on the long term’

‘leading provider of individual mobility in the premium sector’

‘pricing fairly stable as new cars are coming in’

‘good volume that should offset the costs...similar development to last year…margin not to improve’ (vs Q3)

‘slight improvement in mix in the third quarter’ – “X” products, 7 series launch in Q4 and beyond.  So far ‘very well received’.  

Generally good comments even if China remains uncertain and the timing of capex has just taken the edge off short-term margins.  The stock has jumped keenly since the sentiment low point towards German autos after the breaking of the VW scandal...


I did buy the stock near the mid Euro70s lows and am in no hurry to sell it.  A quality longer-term operator.  For new capital I would probably wait and see if you get an opportunity in say the Euro80s.

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