Volkswagen: Why Porsche’s IPO May Not Be So Sparkling

(BFM Bourse) – Volkswagen confirmed this week the IPO of its luxury brand, which should be effective before the end of the year. But this important operation comes at a dangerous time in terms of market conditions.

Porsche is about to hit the road to the stock market. Its parent company Volkswagen, at the end of a supervisory board held overnight from Monday to Tuesday, confirmed and explained the plan for a separate list of the manufacturer of the famous 911.

The intention to float, the first stage of the initial public offering (IPO), should be completed in early September or early October and the operation should be completed before the end of the year.

Porsche will thus be listed in Frankfurt and will join other listed luxury car groups Ferrari and Aston Martin, which entered the Milan and London Stock Exchange in 2016 and 2018 respectively.

The largest IPO in Europe since 1999

The operation should make it possible to crystallize the value of the mythical brand, the market has a habit of giving more generous multiples to separate activities. For Volkswagen, a Porsche listing would raise funds to finance its transition to electricity…and pay its shareholders. Therefore the group plans to distribute 49% of the gross proceeds of the issue as an extraordinary dividend to its holders, under the green light of an extraordinary general meeting.

According to sources cited by Bloomberg, Volkswagen is testing the appetite of the market, with well-known investors of the main interested parties, such as the sovereign wealth fund of Qatar or the founder of Red Bull, Dieter Mateschitz, and the CEO of LVMH, Bernard Arnaud. According to Bloomberg, Porsche could be worth between 60 billion and 85 billion euros. At the high end of this range, Porsche’s entry in Frankfurt was the largest IPO in Europe since 2019, according to Refinitiv.

In comparison, Volkswagen’s market capitalization is currently at 86 billion euros. Tesla, for its part, weighs almost 10 times, with a capitalization of 905 billion euros, and trades more than 100 times this year’s expected earnings, against 4.3 times for Volkswagen and 40 times for in Ferrari.

Difficult market conditions

Porsche’s IPO comes at a particularly bad time. The European auto compartment has suffered for weeks. Over a month, the index of the European Stoxx Europe 600 and Parts sector has lost almost 7%, and has fallen by 21% since the beginning of January. This decline did not save Ferrari and Aston Martin, which lost 13.3% and 66% respectively since the beginning of the year, or even Tesla, which fell by almost 28% in the same period.

“The time is clearly not ideal for an IPO, 2022, unlike 2021, is not the year of stock market euphoria or IPOs, and the valuation figures that surround Porsche seem too optimistic to me. , even more on the quality of the company”, explained an analyst specialized in the automotive sector. “They have a better chance of hitting $60 billion to $85 billion next year in a likely less risky environment.”

There are many reasons for punishing automotive stocks in the stock market, cyclical stocks in nature. “You’ve got interest rates going up [qui pèse sur la demande, NDLR]the slowdown of the Chinese economy, fears of a recession in the United States next year, in addition to difficulties specific to the sector, such as the supply of semiconductors and the increase of raw materials”, develops the ‘analyst .

A regional election

Added to these difficulties are uncertainties about gas supply in Germany, following the closure of Nord Stream 1, which raises fears of restrictions or even rationing where the automotive sector is likely to be exposed. On Monday, the announcement of the closure of Gazprom’s gas pipeline rolled over all European car stocks.

“The timing is bad”, says Stifel bank. The research office also pointed out that the planned date for the launch of the IPO is a few days before the regional elections in Lower Saxony on 9 October. “Which could trigger changes in Volkswagen’s supervisory board and therefore could bring uncertainty to the support for the IPO”, explained the establishment.

Lower Saxony, a German region, is the group’s second largest shareholder with 20% of the voting rights and 11.8% of the capital. Still, Stifel thinks the operation should go through, despite this disastrous context.

Cited by Reuters, the chairman of the management board of Porsche, Oliver Blume, decided on Tuesday that his company’s IPO would give a boost to a market that lacks interesting opportunities. “There is a lot of capital in the market. We believe that the Porsche IPO will break the ice,” he said.

The leader then drove the point home on Thursday in an interview with Reuters. “Despite the conditions of the market, the interest is very great. It is a great success,” he said.

Questions about management

In addition, the structure of the operation, especially in terms of management, may raise eyebrows, underlined Stifel. The Piëch family, descendants of Ferdinand Porsche, founder of Volkswagen, will take a large stake in Porsche through its Porsche SE holding company (not to be confused with Porsche AG, the car manufacturer) up to 25% +1 unit of ordinary shares, ie a blocking minority. Remember that Porsche’s capital is divided into half of the preferred share (which has a fixed dividend but no voting rights) and the other half of the ordinary share.

However, Porsche SE owns 31.4% of Volkswagen’s capital and 53.3% of voting rights. In other words, the Piëch family controls a group that will sell it a large stake in its subsidiary. And Hans Dieter Pötsch combined the position of Chairman of the Supervisory Board of Volkswagen and Chairman of the Executive Board of Porsche SE…

“There is a risk that Volkswagen sells Porsche AG too cheaply, which could be negative [l’action] Volkswagen and positive for Porsche SE [également cotée à Francfort, NDLR]”, underlines Stifel. Bloomberg’s leaks of the valuation however reassured the bank that decided that Volkswagen would benefit the most from the transaction, for good.

At the end of a long war in the stock market that began in 2008, Volkswagen ended up buying Porsche AG 100%, after the latter itself tried to swallow its German competitor. Almost 15 years later, Porsche SE will become the largest shareholder of the automotive group whose name it shares…

[Note: les cours et éléments de valorisation ont été arrêtés vendredi en début d’après-midi]

Julien Marion – ©2022 BFM Bourse

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