BMW Preferred Shares: 3rd Update

Updated the database again, seems like the spread is stabilizing at around 45% discount.

This is the whole time line since 2003 until now:

And here the changes since the last update:

Since October we can see a upwards trend in the common stock. It seems like the pref are adjusting slower as we can observe slightly rising spreads.

See also my initial post and the 2 following updates: Nr. 1 and Nr. 2 of my little study.

BMW Preferred Shares: 2nd update; Spread shrinking

I update my database today and included the data from the 15.05.2012 until yesterday, 11.09.2012.
As one can clearly see, the spread between preferred and common stock is declining, two days ago even delcining below 40%, to the lowest level since 23.11.2011, so almost one year.

The price level of the stock was pretty much stagnating, declining a little bit over the period.
It seems like the spread increases, when the common stock breaks out and price rises, wheras the preferreds are lower too resond and dont increase all that much.
The leads me to the conclusion that momumentum is an important factor, probably also connected with the fact that the commons are representate in the DAX30, which often gets a lot of attention from day-traders and algo-trading. Since they adjust long/short positions very frequent sensitivity should be much higher than for the preffered.

______________
Here you can find the first two parts of the series on BMW/BMW3:
Part1 and Introduction
Part 2 - Follow Up

First follow up up on BMW Common – preferred stock spread

Since it seems like there is some interest in this topic by my readership (and by myself), I decided to keep track of the development.

Since the data of my first post on BMW is itself older than the date of the text published, I have 2 months covered with the newer dataset.

This is the development since March the 16^th:

 

As we can observed, the spread between both declined considerably during the last few days mainly because of a steeper decline of the common shares, however historically speaking the spread was quite high during the months covered here and considerably higher than average.

Median one year spread changed from 48,31% to 50,96%, i.e. and increase by 2,65%, quite a lot.

On the last day spread was at 47,91%, thereby laying under the 1 year historical, but still over the 2 years (46,83%) and the 9 year median spread (39,58%).

So those two last months might have been a very good time to buy into the preferreds.

BMW preferred shares – should investors prefer?

Finally, after a long lazy time I motivated myself to write something.

So today I want to show you something what might (!) be a result of inefficiency of markets, a topic that always fascinates me.

This might-be anomaly is about the German car-manufacturer BMW (“Bayerische Motoren Werke AG”), a group with almost 70 Billion in Revenue in 2011.

In general I’m not very bullish about the automotive industry, but this, I think, is worth one or two looks in depth.

Its 602 Mio. common stocks (Bloomberg: BMW) are being traded internationally in greats volumes, thereby being highly liquid. Additionally the commons are listed in several indexes, among them the German blue-chip index DAX or the EURO-STOXX.

Additionally there are preferred shares (BMW3) around, some 52,2 Mio, what makes when compared to the commons quite a tiny proportion. Accordingly Volume traded is much lower.

In the week of 05.03.2012-09.03.2012 there were 18,2 Mio. Pref. shares traded, with an average of 3,6 Mio/day. In my opinion that makes still quite a lot and should be suffice for a market to function and build an appropriate price. During the same time volume of commons was 261,5 Mio, with an average of 52,3M/day.

Due to the strong link between common shares and indices, Beta should be higher with the commons, as indeed it is. During the last year BMWs Beta (DAX) was 1,15 over the past 5 years 1,11. BMW3 has had a Beta of 0,99 and 1,05 accordingly. 

Same reason will probably explain the reduced volatility, last year commons had a volatility of 40,7%, whilst BMW3 had some 36,1%. Interestingly the spread seems to increase in the more recent time, for 5 years the spread was some 0,1%, during the last month it went up to 7%.

On Image 1 and 2 you can see screenshots with the data mentioned above.

Now let’s go on to the core this: The price.

On the following Diagram you will see:

a) The daily adjusted closing price of the common stocks (in blue, labeled Stamm, left Scale, in EUR)

b) The daily adjusted closing price of the preferred shares (in pink, labeled VZ, left Scale, in EUR)

c) The daily spread between those two stocks (in read, labeled spread, right Scale, in percentage)

From The raw data was taken from yahoo finance and processed by myself.

As you can see, right now the Spread between the two shares is quite high again, however far from historic height in late 2009. Median Spread is 28,23%, average is 32,88%, correlation 0,8697.

Now let’s see the dividend of each type of share:

As you can see, difference is quite small, only 0,02 EUR, what might have been something in 2000, when there was only 0,46 EUR/Share to be given, but with 2,30 (proposed) for 2011, this 2 cents don’t make much of a difference. Also consider that you will give up your voting rights for this 2 cents.

So naturally there must be a discount for preferred shares, however some 55% are quite a lot.

This is the estimated dividend yield with closing prices from the 16.03.2012: 3,2% common, 4,9% preferred.

So to come to an end, in my opinion the preferred shares are a much better pick right now since the discount a discount of 45% is too much. Ownership is stable, there are no roomers of major shareholder trying to gather up common stocks (=voting rights) and thereby trying to take control over. The last buyback program was in 2006 (3% of commons), and I doubt there it will be renewed.

All in all, I see chances here by going long on BMW3.