Porsche IPO: Is this valuation still worth it?

Porsche IPO: Is this valuation still worth it?


Perhaps the biggest event of the year is approaching in the stock market: the IPO of sports car manufacturer Porsche. Until now, investors could only buy shares in the holding company of the same name Porsche SE (WKN: PAH003) buy and get mainly indirectly Volkswagenshares (WKN: 766403). Investors should now have the opportunity to invest directly in the popular cult brand at the end of September.

At the time of the IPO, Porsche’s stock is expected to reach a value of between 70 and 75 billion euros, making it the biggest player on the German stock market in one fell swoop. Even the Volkswagen segment has a market capitalization of 88 billion euros (as of September 19, 2022). Can that be justified?

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Porsche shares and Volkswagen shares – bad prices?

Porsche produced less than 146,000 vehicles in the first half of 2022, making it a poorer compared to parent company Volkswagen, which sold nearly four million vehicles. When it comes to sales, the two automakers are far apart. So it seems a no-brainer that Porsche’s share should have almost the same valuation as Volkswagen’s share after its IPO. Especially since the Wolfsburg-based company will still hold 75% of the sports car maker after the IPO.

After the Porsche IPO, this block of shares alone will be worth between 52.5 billion and 56.25 billion euros. That’s up to 64% of the Wolfsburg-based carmaker’s market value. The rest of the business, which includes brands like Audi, Lamborghini and Volkswagen itself, would be acquired for less than 32 billion euros.

Porsche IPO: The reason for the high valuation

But there are some financial differences between the two companies that make it clear why Porsche stock is poised for a higher market value.

The sports car manufacturer has tripled its sales in the last ten years. The brand coped well with the lack of semiconductors because Porsche was prioritized within the group when it came to supplying chips. Unit sales fell by just 5% in the first half of the year. Volkswagen, on the other hand, sold 14% fewer cars in the first half of the year than in the same period last year and is below the best times.

But the big difference is in the benefits. The return on sales of Porsche shares should be between 17 and 18% for the full year of 2022 – that is the value of a perfect class in the car industry. In the case of the Volkswagen Group, it will be in the single digits – and Porsche has a big part in that.

At the end of 2022, a few months after the Porsche IPO, the profit transfer agreement between the sports car subsidiary and the parent company should also expire, so that the profit of Volkswagen shares will continue to fall from 2023.

Stupid conclusion

A company’s profitability in relation to sales and capital employed are important factors in evaluating a stock. The Porsche segment is ahead here, since the sale of high-priced cars in small numbers is more profitable than the large business that would remain with Volkswagen stock.

Volkswagen shares are currently valued at a price-earnings (P/E) ratio of just 4.4, which seems very cheap. Especially when you consider the value of the remaining shares in Porsche stock.

But the stock market is already pricing in a fall in earnings next year. Not only because of the loss of the agreement on the transfer of profits and losses, but also because of various other factors. Porsche is in a much stronger financial position – and investors are rewarding this with high ratings for the Porsche IPO.

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Christoph Gössel does not own any of the shares mentioned. The Motley Fool owns the stock and recommends PORSCHE AUTOMBL UNSP/ADR and Volkswagen AG.