POAHF - Porsche Automobil Holding SE Is A Buy

2023-05-22 12:01:48 ET

Summary

• It was a positive quarter for Volkswagen AG and P911.
• No additional negative news on Porsche SE pending litigations.
• 2023 outlook was confirmed as well as its DPS. Therefore, our buy rating is reiterated.

After having analyzed both Volkswagen AG (VWAGY) and Dr. Ing. h.c. F. Porsche AG's latest quarterly release, it is now time to review the recent results of Porsche Automobil Holding SE ( OTCPK:POAHF ) ( OTCPK:POAHY ). Our readers know that it is not the first time that we have deep-dived into the company. As a reminder, Mare Evidence Lab’s buy case recap is based on a SotP valuation supported by the following: 1) Volkswagen AG investment with an equity stake of 31.9% that at today’s price is equal to €22 billion; however, here at the Lab, we have a long-term buy on Volkswagen AG and using our target price, Porsche AG's equity stake could be potentially valued approximately €36.7 billion; 2) Dr. Ing. h.c. F. Porsche AG investment with an equity stake of 12.5% that at today’s price is equal to €13.37 billion (here at the Lab, we also recently initiated coverage P911 with a neutral rating ); and 3) no value on Porsche SE's VC portfolio. To sum up, if we include our supportive 1) and 2) points, we are estimating an enterprise value of €35.37 billion and performing the usual equity bridge in which we subtracted the company’s financial obligations, we arrived at a compelling equity value of €28.67 billion compared to Porsche SE market cap of €16.45 billion. In numbers, this is approximately a 43% discount which is hard to justify.

Q1 development

Given the company’s share capital, Porsche SE is predominantly influenced by Volkswagen AG's development. In Q1, the automotive player decreased its core results after tax by approximately 37% at €4.2 billion. These negative results were mainly due to supply logistic constraints, but on an accounting basis, the reduction was recorded for hedge accounting derivatives with a loss of almost €1.3 billion. Important to note because it is included in our risk section, there were no negative developments about the Volkswagen AG diesel scandal. On a positive note, the automotive player confirmed its dividend payment and thus, Porsche SE will receive a dividend payment of approximately €1.4 billion which in the accounting standard will be recognized in Q2. In addition, Volkswagen AG has ample liquidity and confirmed its 2023 outlook. You can check our Q1 analysis in our last publication titled " The Most Discounted Auto Stock ".

Source: Volkswagen Q1 results presentation

Last time, we emphasized that there was no case to be made against Porsche SE for its dividend payment, and in the current year, Porsche's dividend will be equal to €783 million (as we can see, Volkswagen DPS is sufficient to cover the one paid by the Porsche Automobil Holding SE).

Source: Seeking Alpha

P911 recorded a solid Q1 and the group increased its Q1 results after tax from €1 billion to €1.4 billion on a quarterly basis. In addition, the company significantly grew its top-line sales and has a solid backlog. P911 is in line to achieve its 20% RoS and EV share represents almost 11% of the total deliveries. This positive news may have positive consequences on P911's dividend development.

Going to the company’s detail that supported our buy case recap is the debt evolution. Cash and cash equivalents slightly increased at €103 million, and considering the net financial obligation, Porsche SE reached a minus €6.7 billion.

Source: Porsche SE Q1 press release

Conclusion and Valuation

On the company's Q1 results, Porsche SE recorded an after-tax figure of €1.3 billion and an unchanged net liquidity position. The company's bridge loan was repaid in full and the dividend was confirmed. In detail, Porsche SE is yielding 4.8% and this is covered by earnings. The next payment is scheduled on July 4th, going ex-div on July 2nd. Looking at the 2023 outlook, the company continues to foresee a group result after tax in a range between €4.5 and €6.5 billion. No additional news on pending litigations was disclosed. Therefore, after these positive results, here at the Lab, based on our sum-of-the-part valuation, and applying the same Exor holding discount set at 25% , we confirmed our buy rating at €72 per share ($7.8 in ADR).

Source: Porsche SE Global Auto Conference

For further details see: