Porsche IPO: can it close the gap to its Italian rival Ferrari? Porsche IPO: can it close the gap to its Italian rival Ferrari? Porsche IPO: can it close the gap to its Italian rival Ferrari?

Porsche IPO: can it close the gap to its Italian rival Ferrari?

Equities 10 minutes to read
PG
Peter Garnry

Head of Equity Strategy

Summary:  Volkswagen has just announced that its IPO of Porsche AG is fully subscribed by multiple times securing the public listing of Porsche which is set to be priced on 28 September with first day of trading on 29 September under the ticker symbol P911. Porsche is being valued around EUR 75bn in a public offering that will make it the fifth largest IPO in Europe's history. Porsche is strong car company with revenue up 8% in the first-half of 2022 and sporting an EBITDA margin of 24.5% This is high for the industry but still trailing its Italian rival Ferrari and here also lies the potential for future shareholders of Porsche, namely closing the valuation and operational gap to Ferrari.


The maze of Porsche and Volkswagen

In recent years luxury carmakers such as Ferrari and Aston Martin have been publicly listed with very different outcomes. Ferrari has been a spectacular success while Aston Martin is tethering on a bankruptcy which has happened many times before in history for this proud UK car brand. Volkswagen has recently announced that it plans to IPO the Porsche carmaker and brand and the IPO pricing is set for the 28 September with the first day of trading on 29 September.

Ferrari and Aston Martin weekly share price normalised to 100 | Source: Bloomberg

What is interesting about the IPO is the maze-like ownership structure with Volkswagen owning the Porsche brand and car manufacturing, but itself being owned by the Austrian Porsche-Piech family. The story of why we have ended up in this weird ownership structure started with the privatization of Volkswagen in 1960 in which laws were enacted that stated that any shareholder with more than 20% ownership would have veto over any resolution. The German government kept 20.1% and thus control over Volkswagen. In 2005, Porsche SE (the holding company of the Porsche family) began accumulating a stake in Volkswagen and by 2006 it controlled 25.1%. In October 2008, Porsche SE announced that it had acquired 42.6% with options for another 31.5% as it wanted to go to 75% in order to consolidate Volkswagen’s cash position on its balance sheet. With the Government still owning 20.1% short sellers scrambled to cover their shorts and Volkswagen’s stock price briefly went above €1,000 making it the most valuable company in the world. In the end Porsche SE ended up controlling 53.3% as of the latest shareholder figures. In 2011, Porsche and Volkswagen merged and Porsche AG was designated as a subsidiary of Volkswagen AG. See plot below for voting rights distribution of Volkswagen.

Volkswagen voting rights distribution | Source: Volkswagen

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.

The fundamentals

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.

Porsche fundamentals | Source: Porsche IPO prospectus

The risks

One the absolute key risks to the Porsche stock is the growing cost-of-living crisis as soaring energy costs are reducing disposable incomes in Europe. The sector that is the most at risk from lower demand during this challenging period is the consumer discretionary sector in which the car industry sits. While Porsche is in the high-end of the car industry selling to the 1% of the income and wealth distribution this part of society could also significantly reduce its consumption during the ongoing energy crisis and inflationary period. Because Porsche buyers are wealthy individuals it is not unreasonable to speculate that falling equity and bond markets could severely impact sentiment among the 1% richest of the world. Another risk for Porsche is if the EUR stages a strong comeback as it would the value of international sales and reduce its competitiveness abroad. The war in Ukraine or new Covid outbreaks can impact supply chains and demand for Porsche cars.

Disclaimer

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.