FRANKFURT -- BMW AG pleasantly surprised investors on Thursday by proposing to buy back as much as 10 percent of its shares after it reported 2004 pretax profit that met analysts' forecasts.
A strong result at its core automotive division boosted last year's earnings before tax by 10.9 percent to a record 3.554 billion euros ($4.75 billion), in line with a consensus estimate of 3.544 billion.
Pretax profit at the auto division rose an even stronger 14.4 percent to 3.159 billion euros last year, increasing its margin by 0.2 percentage points to 7.4 percent.
Proposing to raise its dividend for common shares to 0.62 euros from last year's 0.58 euros, the Munich, Germany, carmaker also said it would ask shareholders for permission to buy back and cancel as much as 10 percent of the company's share capital.
"The positive development of cash flows over the past years has enabled the BMW Group to accumulate a substantial level of cash funds and to achieve a solid equity ratio," it said in a statement, adding that cash flow would continue to grow "dynamically" over the coming years.
Shares jumped on the news, trading up 4.5 percent at 34.58 euros, compared with a 0.7 percent gain in the DJ Stoxx European autos sector.
Analysts welcomed the share buyback, saying the company was finally willing to surrender some of its cash in the name of shareholder value.
"The big bombshell is the share buyback program," said HVB analyst Georg Stuerzer.
Adam Collins of Commerzbank said: "BMW has been criticized for some time for lacking investor friendliness, and this is a sign that it has been listening to the request of shareholders who have been concerned that (BMW) are sitting on too much cash."
BMW has not provided an official earnings guidance for 2005, but in January CEO Helmut Panke told investors not to expect profit growth to match the 6 percent to 9 percent increase in group vehicle sales he expects this year. He cited added hedging costs and higher raw material prices.
BMW finance chief Stefan Krause said at the Geneva car show this month that he expects a burden in the "small triple-digit million euros" as a result of steel price increases.
The company is predicting record group car sales this year amid a rise in deliveries for all three brands -- BMW, Mini and Rolls-Royce.
Earlier this year, BMW posted a 6.8 percent rise in 2004 revenues to 44.34 billion euros on a 9.4 percent increase in volume sales to a record 1.208 million vehicles.
Net profit increased 14.1 percent to 2.22 billion.
Strong demand for new models such as the X3 SUV helped BMW topple its beleaguered archrival Mercedes-Benz car group, a unit of DaimlerChrysler AG, from the pedestal as the world's largest luxury carmaker last year.
The BMW brand also stands a good chance of supplanting Mercedes-Benz as the most popular luxury marque in the world, thanks to its new volume models like the sporty 1-series compact hatchback and the revamped 3-series best seller.
But expectations of stronger profits this year after a turnaround at the Mercedes car group meant investors were paying a premium on shares of parent DaimlerChrysler over BMW.
DaimlerChrysler stock had been trading at around 11.7 times 2005 earnings estimates while shares in BMW commanded a P/E multiple around 10 times consensus forecasts, according to Reuters Estimates.
Joachim Paech, partner at PAM Prime Asset Management & Treuhand AG in Switzerland, said investors started to develop a taste again for the more fundamentally solid Bavarian company after Thursday's news.
"The share buyback is certainly a reason for the gains, but also when you look at its outlook it's more optimistic than its competitors like Daimler and Volkswagen," he said, adding that foreign funds were reshuffling their holdings.
"Following its recent underperformance, we're seeing hedge funds from England covering their shorts. Money is flowing out of Daimler and VW and into BMW."