The IPO details
Under the IPO Prospectus it says that Porsche AG will split its share capital in two 455.5mn shares each in ordinary and preferred shares (a play on its iconic 911 car model) with the former share class providing voting rights. The share class that will be floated on the Frankfurt exchange with the ticker symbol P911 is the preferred which has no voting rights but entitled to a dividend of €0.01 per share more than the ordinary shares. The
Volkswagen plans to sell 25% plus one share in Porsche AG to Porsche SE giving the holding family and the Porsche family blocking minority right. In addition, Volkswagen plans to sell 25% of preferred shares on the market with news today that the offering is already multiple times oversubscribed across the whole price range from €76.50 to €82.50 with Qatar Investment Authority, Norway’s Sovereign Wealth Fund, and T. Rowe Price have already committed themselves in the IPO. The indicated price range puts Porsche AG valuation at €75bn which is close to Volkswagen’s market value of €91.6bn. The public offering size of Porsche AG shares will potentially make it the fifth largest IPO in Europe’s history.
Volkswagen is selling shares in Porsche AG to the public to accomplish two objectives. Reduce the valuation discount on Volkswagen shares from the cross-holdings and unlock more value from a pure luxury brand play (Porsche). In addition, the public offering raises capital for Volkswagen very capital intensive switch to being all electric vehicle over the next decade. Volkswagen is expected raise around €19.5bn from the public offering in which is promising to pay out around €9.6bn in a special dividend by early 2023.
Porsche is a well-run company generating €33.1bn in revenue in 2011 with an operating profit of €5.3bn and EBITDA of €7.4bn translating into an EBITDA margin of 24.5% which is good but not on par with Ferrari’s 35.7% in 2021. It should be said that Ferrari is company that can extract even more in profits per car manufactured due to its higher brand status. With an estimated market value of €75bn and the EBITDA of €7.4bn in 2021 it translate into a multiple of 10.1x which is significantly lower than Ferrari’s multiple of 22.2 times market value to EBITDA suggesting Volkswagen and the Porsche family wants a successful IPO and are aware of the current market volatility. Porsche’s revenue grew 8% in the first-half of 2022 with strong cash flow generation of €3.9bn which is a strong result given the general weakness in the car industry, but still lower than Ferrari which has seen its revenue growing 17.3% y/y and 24.9% y/y in Q1 and Q2 respectively.
The main question for potential shareholders in Porsche is whether the company can make a successful transition to become fully EV while preserving or even expanding margins. It is clear when you compare Porsche to Ferrari that there is room for improvement and a potential upside if Porsche can improve its operations and expand on its already strong brand. Volkswagen has promised that synergies will continue to exist between the Volkswagen group and Porsche, but for the future success of Porsche we believe the key is more autonomy.