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BMW 2006 Profit Hits Record as 3-Series Buoys

Germany's BMW, the world's largest premium carmaker, said on Thursday its 2006 pre-tax profit rose by a quarter to a record 4.124 billion euros ($5.4 billion) on buoyant demand for its top selling 3-Series sedan.

The Munich-based group, which makes BMW, Mini and Rolls-Royce cars, saw its revenues climb 5% to 48.9 billion euros ($62.2 billion) after it notched up a 17% rise in 3-Series sales last year to more than half a million cars.

"The past year has been the best financial year so far in the company's history," Chief Executive Norbert Reithofer said. "We were able to achieve and in some areas do even better than the targets we set for ourselves in 2006," he added.

Its 2006 group earnings, which were boosted by the inclusion of a 372 million-euro ($524.7 million) gain from selling shares in U.K. aero-engine maker Rolls-Royce, were in line with the average estimate in a Reuters poll of 19 analysts. With a 28% rise in net income to a record 2.874 billion euros, BMW proposed raising its dividend to 0.70 euros per ordinary share from 0.64 euros a year earlier and to 0.72 euros per preferred share from 0.66 euros.

BMW said it would again seek authorisation at the annual shareholder meeting on May 15 to buy back up to 10% of the company's share capital. That would roll over its current buyback authorisation that expires in November.

By March 2006 the carmaker had repurchased 3% of its stock for 759 million euros ($996.4 million) or an average 37.51 euros ($49.5) per share.

Reithofer reiterated BMW was aiming for record sales volume again this year in all three brands, which analysts said seemed reasonable thanks to the full availability of the new Mini and an extended BMW 3 Series line-up. The second-generation Mini subcompact went on sale in Europe in November.

"Plans to buy back up to 10% of its shares as well as the announcement of a 9% dividend increase... should underpin positive sentiment," Stephen Cheetham at Sanford C. Bernstein said in a note to investors.

"While no 2007 earnings guidance was given, we expect the currency headwind to abate and product mix to improve in 2007 as sales of the 3 Series, X5 (SUV) and Mini gain traction," said Cheetham, who rates BMW as outperform with a price target of 48 euros.

Cash Pile

"Our biggest concern for BMW is the increasingly unhedged exposure to a weakening U.S. dollar and the 6 billion euro cash pile that is diluting the return on invested capital," said Michael Tyndall, auto analyst at Nomura International.

He expected more news from BMW's annual report on March 14.

BMW's more-than-frugal dividend policy and its determination to reinvest cash into growth have frustrated investors that have been unhappy with the stock's performance in recent years.

While the carmaker's stock gained 11% between 2002 and 2006, the German blue-chip DAX benchmark climbed 28% and the DJ Stoxx European autos index by 33%.

This came despite car sales growing by almost half and the generation of 3.72 billion in free cash from zero during the period until the end of 2005.

Analysts have become nervous over signs BMW may be harming its brand by spending considerably more than its premium rivals on sales incentives in its key U.S. market in recent months.

At the Geneva motor show this week, Reithofer pledged to reduce incentives for vehicles sold in the U.S. market as new models help lift deliveries above last year's mark.