Summary
- Porsche IPO could be equal to Volkswagen's market capitalization.
- Numbers and details on one of the biggest European IPO.
- We left our Volkswagen target price unchanged, confirming our buy rating.
Here at the Lab, we have a good grip on automotive companies. We recently commented on the second quarter performance of the European auto major ( Mercedes , Renault and Ferrari ) and our first ever written article was about Daimler's sum of the part . Today, in a very similar way, we move on with Volkswagen (VWAGY) and its future Porsche IPO. Before going to the details, we should note the following:
- Volkswagen AG is a holding company with production facilities and many brands (many of these entities are run independently). The company known as “ Porsche ” is one of these entities. Porsche AG is currently 100% owned by Volkswagen AG.
- There is another listed company called Porsche Automobil Holding SE that has no manufacturing operations. This is a holding company with its largest investment being Volkswagen AG.
- Both Volkswagen AG and Porsche Automobil Holding SE have two classes of shares - ordinary shares with voting rights and preference shares with no voting rights.
No-voting rights
Voting rights
Looking ahead to the half-year results , we should note that at the time of writing, Volkswagen's market capitalization amounts to €85.4 billion. According to the latest rumors, Porsche's IPO is going to be one of the largest in Europe. Indeed, according to Bloomberg , in the pre-order phase, the sports car house would have in fact collected a demand higher than the offer reaching a valuation between €60 billion and 85 billion.
Despite the markets' negative phase and fears about Europe's economic outlook, the operation is expected to take place in the first week of September after the go-ahead from the supervisory board. Only Porsche preferred shares without voting rights should end up on the market, and Volkswagen will continue to hold the majority. More in detail :
- With the usual two-shares approach, Porsche AG capital will be divided into 50% ordinary shares (voting) and 50% preference shares (non-voting).
- 25% of the Porsche AG preference shares are going to be listed on the Germany Stock Exchange.
- 25% plus one of the ordinary shares will be sold to Porsche Automobil Holding SE at a premium of 7.5% to the IPO price of the preference shares.
- Whereas Volkswagen will (again) be the major shareholder of both Porsche AG’s ordinary shares (75% minus one share) and the preference shares (minimum 75% holding).
- There will be a special dividend payment to the current Volkswagen shareholders.
Aside from the IPO consideration, in July Porsche AG announced standalone guidance for the first time with a revenue line between €38/39 billion and a margin in the 17/18% range at the EBIT level for 2022. During the CMD, management emphasized how this EBIT margin is forecasted to be even higher in the future thanks to better product MIX and more emphasis on the EV transition.
Conclusion
Like FCA's spin-off of Ferrari, the luxury car brand's listing serves to extract hitherto unexpressed value. Ferrari stock is worth around 35 times its estimated earnings for 2023, while Volkswagen (VWAPY) is trading at around five times its earnings. As it is, at the lowest range of the numbers confirmed by the management, Porsche's EBIT is around €6.5 billion. If the estimate of €60-85 billion were confirmed and the price was at the top of the fork it would be a valuation almost equal to the entire VW.
According to Bloomberg reports, the deal has already attracted the interest of several prominent investors, such as T. Rowe Price (TROW) and the Qatar Investment Authority and billionaires such as Red Bull owner Dietrich Mateschitz and LVMH president Bernard Arnault. We just talk about Porsche IPO which equals less than 4% of the total vehicle production of the entire group. There are other jewels in the VW crown such as Ducati and Lamborghini. We confirm our positive view and our target price .
For further details see:
Volkswagen Is Really Undervalued