Porsche sees the IPO as an opportunity to invest in a company that combines top-tier rivals such as Ferrari NV and luxury brands such as Louis Vuitton. The problem is that not all investors buy it.
According to those familiar with the matter, at the initial meeting with the portfolio manager, the Volkswagen AG division made good profits and significant sales compared to Richemont, the French handbag manufacturer and owner of Cartier. Ferrari is also mentioned, which has the highest profit margins in the industry, but Porsche makes only a small portion of the more than 300,000 cars a year.
Those who discussed the classified information said one of the concerns raised by investors was the structure of the public offering that would not make Porsche more independent of its parent company. They also point to headwinds in the IPO market, which has slowed sharply due to inflationary frenzy, rising interest rates and the Ukraine war that sparked Europe’s worst energy crisis in decades.
“Porsche is not a safe bet in a recession because it’s not as exclusive as Ferrari,” said Daniel Rothka, Bernstein automotive analyst. “And if you don’t change the system and let Porsche make better decisions for itself rather than at the group level, you’re not increasing shareholder value.”
Set to begin in September, the show will be one of the biggest in Europe. According to those familiar with the matter, Volkswagen has hired more than a dozen banks to pursue the initial public offering, which could put Porsche’s value from €80 billion ($0.5 billion) to €90 billion. The acquisition may exceed the current market value of the parent company. This comes at a time when automakers are grappling with supply chain issues and beginning an expensive transition to electric vehicles.
However, IPOs of this size are so rare in Europe that they can avoid a widespread market downturn, so portfolio managers should keep a close eye on candidates when they automatically enter key stock benchmarks in the region, the people said.
Volkswagen did not provide specific figures or valuation targets at meetings in Europe and the United States, but the fund managers who attended left a positive impression on the brand’s ability to increase margins in the medium term, the official said. Porsche could host Capital Markets Day on Monday to bring in new profits.
However, many fund managers remain concerned about Porsche’s small free-flow of 12.5% and its dual-class stock structure that leaves little room for more management freedom.
Volkswagen plans to sell 25% of its non-voting preferred stock. The billionaires Porsche and the Bich clan, who control Volkswagen through voting rights, will buy a banned minority stake in Porsche and receive special dividends.
A Porsche spokesperson declined to comment on contacting Bloomberg News.
“Porsche’s managers have come up with a strategy to lead the company very well,” said Simon Jaeger, portfolio manager at Flossbach von Storch AG. However, he cautioned that the planned ownership structure will affect the company’s valuation.
Investors have criticized Volkswagen’s complex governance structure for its sub-stock market performance in the past. Volkswagen’s stock of choice has fallen by nearly a quarter this year, and the company as a whole, including Audi, Lamborghini and Bentley, is valued at around €80 billion.
Volkswagen has been striving for years to become more flexible, but with limited success. The stock VW truck-making unit, the Trayton SE, has faded between interior snags and small free floats. The company’s stock price has nearly halved since its IPO in 2019.
Porsche claims to be one of the leading luxury car manufacturers due to its mass production. The brand sold 301,915 cars last year, compared to 11,155 cars for Ferrari and 6,178 cars shipped by Aston Martin Lagonda Global Holdings plc. Additionally, according to this presentation by Bloomberg, Porsche is touting its resilience in profitability, with operating margins increasing an average of 16.1% over the five years through 2021.
But there are concerns about the overall environment. The auto industry has struggled to increase production since the pandemic shook global supply chains and triggered a shortage of semiconductors. Tesla Inc. lost. The world’s best-selling electric vehicle maker has nearly a third of its value this year. Ferrari, which aims to reach operating profit margins of 30% by 2026, the benchmark for successful luxury car IPOs, also fell nearly 16%
“Porsche has a discounted margin profile compared to Ferrari,” said Dave Chakraborty, portfolio manager at Alliancebernstein. “I see the valuation of the company approaching $75 billion at the IPO instead of the advertised $100 billion.”
There is one key aspect that Porsche is following. It’s far ahead of peers including Ferrari and Aston Martin when it comes to electrification in the ranks.
An official said preliminary IPO meetings have been held in Frankfurt, London, New York and Boston, and some investors have toured the factories where Porsche assembles the Tycan. The manufacturer is also preparing to release a battery-powered version of the popular Macan SUV to replace the Tesla Model Y.
“Porsche is the closest oldest brand to Tesla electrically,” Michael Dean, an analyst at Bloomberg Intelligence, said this week. It will be Tesla’s main competitor in 2023.”
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