Volkswagen holds the keys to Porsche’s race against Ferrari

Porsche AG’s ability to undercut arch-rival Ferrari may depend on whether its major shareholder, Volkswagen, backs down and gives the German automaker more freedom to cut costs and shape its future.

The 911 maker entered the seventh quarter since its IPO at a discount to Ferrari based on its previous price-to-earnings (PE) ratio ¨s of 69%, which disappointed expectations for valuations comparable to those of luxury. product.

2024 is shaping up to be a transition year, with Porsche AG launching several new models, helping to keep margins high ahead of a more promising 2025 for the 75.4% Volkswagen-owned company.

That could keep fast-track investors from taking a closer look at its stock, even as competition from China in electric cars grows. But most patient portfolio managers aim for higher returns over the long term.

Gaining more freedom from Volkswagen could be key, some analysts and fund managers say, especially if it helps resolve the company’s complex governance issues.

In 2022, some investors rejected Porsche AG’s IPO because Volkswagen CEO Oliver Blume remained CEO of Porsche AG, which they said could risk conflicts of interest.

Porsche SE, the investment holding company of the Porsche and Piech families that control Volkswagen, also holds a controlling minority in the non-commercial voting shares of Porsche AG.

In total, more than 12% of Porsche AG’s capital is held by institutional and private investors.

“Increase the float to 60-70%, give Porsche an independent board and the deal is done,” said Andrea Scauri, a portfolio manager at Lemanik, based in Luxembourg, and a minority shareholder of Porsche AG.

Scauri believes that a more independent Porsche AG may have more room to cut costs, including personnel costs.

“If they manage to show that they can approach Ferrari’s operating profit, the discount must be reduced, not reduced, but reduced,” he said.

A Volkswagen spokesman said its position has not changed since last month, when Chief Financial Officer Arno Antlitz said there were no plans to sell more Porsche AG shares. A spokesman for Porsche SE said there are no plans to buy or sell shares in Porsche AG.

POLICE MOVEMENTS

Comparisons with Ferrari — which was spun off from Fiat Chrysler in 2016 as part of a multi-year restructuring that saw Italy’s Agnelli family reduce its exposure to the auto industry — return to Porsche AG’s lineup in 2022.

Since then, Ferrari’s market value has more than doubled to nearly $100 billion, while that of Porsche AG has only increased by 8%. When Porsche AG went public, Ferrari’s discount was around 47%.

Some analysts, including those at HSBC, have noted that a direct comparison is difficult because Porsche AG is not a luxury brand like Ferrari. Both, however, are symbols of European automotive industry prowess, and their market value is broadly similar.

Something is already going on, slowly.

The PE valuation gap has fallen to 66% and Porsche AG shares have gained 10% since February, when they set a record 125% underperformance compared to Ferrari.

In March, Lutz Meschke, the chief financial officer of Porsche AG, suggested that the float could be lifted in the future. That sent the stock jumping 16% on the day, after an earlier mixed reception to the results released that day.

Meanwhile, other investors see a good deal elsewhere.

Niche AM founder Massimo Baggiani sees Volkswagen, which he owns as part of an electric mobility fund, as a cheap and safe way to ‘expose the market’s passion for extreme luxury’.

Mr. Baggiani values ​​Volkswagen’s luxury brands, which also include Lamborghini, Bentley and Bugatti, as well as other smaller publicly traded businesses, at 125 billion euros ($133 billion) in total. This means a potential 90% rise in Volkswagen’s share price, he said.

Shares of Porsche AG, which will publish its results on April 26, trade at 16 times expected earnings and those of Volkswagen at 4 times. Ferrari trades at 48 times. ($1 = euro 0.9400)