Porsche share sale could send value into overdrive
Maker of the 911 model could easily be put at “between €60 billion and €70bn”, says chief financial officer
Porsche’s chief financial officer said a share sale of Volkswagen’s most profitable unit could unlock value to echo Ferrari’s successful public offering and help the sports-car maker raise money if needed.
The maker of the 911 model could easily be valued “between €60 billion [Dh255.48bn] and €70bn”, applying multiples for luxury-goods producers such as Ferrari, Lutz Meschke said at Porsche’s development centre outside Stuttgart at a recent event for the brand’s first electric car, the Taycan.
A partial initial public offering would add financing flexibility as the car industry faces “the biggest transformation ever”.
Porsche isn’t pursuing plans for a listing, a decision that would be taken at group level, the company said on Monday following the comments, Bloomberg reported.
The company could look to British rival Aston Martin, which also plans the electric Rapide E, for an idea of how any IPO might play out.
The first bank to give the James Bond car maker a rating after it started public trading on October 3 had some advice: sell.
Long-only investors are likely to “stay on the sidelines”, partly due to the fact the lock-up period preventing insiders from offloading shares is a relatively short six months, Jefferies analysts including Philippe Houchois wrote in a client note, initiating the 105-year-old UK firm at underperform, the equivalent of a “sell” rating.
The structure of the initial public offering as a “secondary only” deal - meaning existing shareholders sold shares with funds going to them, instead of issuing new equity to raise capital to generate growth for the firm - is also likely to weigh on the stock, they added.
While “few stocks if any in our coverage will deliver stronger earnings progression” than Aston Martin, the Jefferies analysts said valuations on the England-based luxury sports-car company price in “Porsche-like” margins. It will need to beat estimates for there to be any upside, they said. Jefferies was the first bank of those tracked by Bloomberg to start coverage.
Before Thursday, Aston Martin had fallen about 15 per cent over the six trading days since it began trading on October 3.On Monday, they closed down 1.9 per cent. Even so, it’s still valued at a premium to some luxury peers such as Ferrari and French apparel firm Hermes International, the Jefferies analysts said.
"Aston Martin failed to get the start it was looking for. The fanfare that was expected for the shares never materialised," Jordan Hiscott, chief trader at Ayondo markets, told AFP.
The Aston Martin CEO Andy Palmer, however, was unfazed by the less-than-dazzling initial performance. “We’ve taken 105 years to get to an IPO, we are not going to worry much on what the initial shares are doing,” he said. “We will always look over the longer term.”
At Mr Meschke’s estimate, the market value of an independent Porsche would rival that of the entire VW group, which includes 11 other brands. Shares of the parent have lost 16 per cent this year, giving it a market capitalisation to €69.3bn.
The comments show the structural changes run deeper than VW has mapped out so far, and offer a rare insight into deliberations within VW’s top ranks. Mr Meschke said he has pointed out the benefits of a listing during internal discussions, but declined to say to what degree his view is shared by VW chief executive Herbert Diess or key stakeholders like the Porsche and Piech owner family.
“VW is one of the few car makers whose management team is aware that actions are needed in the near-term in order to optimise the positioning of the company,” Evercore ISI analyst Arndt Ellinghorst said in note. Partial listing of VW’s units are “one obvious way through which VW can prepare itself”.
Mr Diess, continuing an asset review that started two years ago, has pledged to make the world’s biggest car maker ahead of Toyota more efficient as the industry goes through a seismic shift to make electric cars with new digital features.
The only tangible result of the review is a planned share sale of VW’s heavy-truck unit Traton, Bloomberg said. An effort to sell the Ducati motorbike unit stalled last year, after VW’s powerful labour unions resisted the plan amid a lack of support from the Porsche and Piech family.
VW chief financial officer Frank Witter last month said the company might consider options including a separate listing of the sports-car operations led by Porsche at some point. Such a plan wasn’t “a priority the management is working on”, he said in London.
Porsche is Volkswagen’s crown jewel and closely connected with its history. The companies were separate until Volkswagen acquired the Porsche brand in 2012 in the aftermath of a failed takeover attempt by the the descendants of Ferdinand Porsche. The family, which was forced to sell the maker of the 911 sports car after financing collapsed on the deal, still controls a majority of Volkswagen’s common stock and would need to sign off on any deal to spin off Porsche.
Ferrari’s listing in 2015 not only showed the supercar maker’s own value, but also exposed weaknesses at parent Fiat Chrysler Automobiles’ mass-market operations, Mr Meschke said. Fiat was able to address these more specifically after the spin off, he said.
Many large industrial companies, from Daimler to Siemens, are taking steps to adopt a more efficient structure to be able to react to disruptive changes of their businesses. Trade frictions are adding to the mix to fuel fuel concerns about economic growth.
“When the next economic crisis comes, it’s going to be severe, because it’s going to affect all global regions at the same time as they are now closely connected,” Mr Meschke said. His comments echo warnings by global finance chiefs at the International Monetary Fund’s annual meeting last week, who said tensions over trade and rising interest rates threaten to turn the world economy into a battleground just as global growth peaks.
Porsche, with an operating return of more than 17 per cent on sales of €32.5bn last year, faces increased spending demands to start making electric cars. The Taycan, its first purely battery-powered model, will cost more than €1bn to introduce during the second half of next year. It’ll cost slightly less than the $85,000 Panamera four-door coupe, and the $81,000 Cayenne, Mr Meschke said.
That price tag puts the Taycan head-to-head with Tesla’s $77,000 Model S.
Porsche will spend another €500 million on developing variants of the Taycan and will add electric versions of its existing four-door models like the Macan and Cayenne 4x4s.
“We have said about 50 per cent of our cars are going to be electric in 2025, but I can imagine it might be significantly more than that,” Mr Meschke said.
Despite the increased spending, Porsche is sticking to its operating profit margin goal of more than 15 per cent, he said.
Updated: October 16, 2018 09:24 AM