Summary
- Volkswagen order books are very well filled.
- Porsche IPO catalyst has still not played out. We continue to see Volkswagen really undervalued.
- Sales and margins were confirmed, so did our valuation.
Here at the lab, we are back to comment on Volkswagen AG's quarterly results ( OTCPK:VLKAF ) ( OTC:VWAPY ). We suggest our readers to look at our previous publications:
- Volkswagen is really undervalued
- (And directly correlated to Volkswagen) - Porsche Automobil Holding SE is a clear buy
It was a mixed quarter for Volkswagen. On the automotive core activity, the German car player is performing well; however, net profit fell, and the company postponed its new investment round. Going to the detail, here are our main highlights:
- In the first nine months, despite lower vehicle unit sales, Volkswagen's turnover increased by almost 9%, accelerating its positive trend also in Q3. Many Wall Street analysts are asking if this trend is sustainable over the long term horizon and the general consensus believes that this special situation, in which automotive car players are constantly raising prices, is now ending;
- Despite point 1), and taking into consideration the latest Volkswagen comment, we understood that order books are very well filled. For Audi, on average, car buyers would have to wait six months for a new car. CEO confirmed that car demand is greater than Volkswagen's production for the next year. It is complicated, but here at the Lab, we forecast that prices will remain stable and high, with hardly any discounts (and also interesting returns on residual values ??of used cars). On the other hand, we are also estimating higher costs, especially in the energy space;
- Volkswagen slightly outperformed the consensus on the revenue line;
- Going down to the P&L, EBIT reached €4.3 billion in the quarter, up by more than 60% compared to the previous year's figure (when the company was heavily impacted by chip shortage); but less than analysts had expected. To be precise, the adjusted EBIT was €5.87 billion and was well above the consensus estimate. However, it is not clear whether the one-off effects were included in the Wall Street projections;
- Looking at the detail, the operating result was impacted by a €1.9 billion write-off due to Volkswagen's Russian activity suspension, ARGO AI non-cash impairment, and higher costs related to the Porsche IPO;
- At the bottom line, the company's net profit stood at €2.13 billion, 26.5% lower than a year ago;
- The VW Group usually schedules its budget investment plan in November; however, due to the ongoing and prolonged challenges, Volkswagen's CFO confirmed that the company needs more time to assess its investing activities;
- Due to supply chain constraints and a shortage of auto parts, Volkswagen has also become more pessimistic when it comes to revenue projection. Indeed, the company lowered its delivery estimates from a 5%/10% increase to the same range of 2021 numbers.
Conclusion and Valuation
Despite the negative implication of point 8), the company reaffirmed its sales and margin outlook at the upper end of the range. We believe that Volkswagen has not benefited from the P911 new share placement, and this was also confirmed by Volkswagen's CEO during the Q3 Q&A call. Indeed, the CEO sees Porsche's Initial Public Offering as a model to increase the group's market capitalization. Hence, Lamborghini and Bentley IPO might follow. The company's next key catalyst is the CMD scheduled for next year, in the meantime, we leave our estimates at overweight, confirming our previous target price of €202 per share .
For further details see:
Volkswagen: Reiterating Our Overweight