Porsche’s IPO comes with a few thorny issues but it could be worth 92 billion euros

Autor: Article based upon analysis from Reuters Breakingviews | Link: Porsche IPO has two investor roadblocks to clear
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Volkswagen’s supervisory board is due to meet on Sunday to move forward with the IPO of its Porsche brand, which will comprise 911 million shares, as symbol for its iconic sports car model, and list a 25% stake in non-voting shares.

Volkswagen is planning to list the luxury sports-car maker to raise funds for its electric transition.

Porsche’s valuation relies on how closely it can mimic Ferrari and what discount should be applied to its complex governance.

This IPO comes after a long-running family saga.

The company was listed until 2012, when the Porsche and Piëch family’s Porsche Automobil Holding SE vehicle merged with Volkswagen after a failed attempt to buy VW out.

The upcoming IPO is estimated to allow the same families regain more control of the Taycan maker from its German parent.

At the same time, Porsche SE will buy a similar chunk of shares with voting rights, giving the families a blocking say on vital calls like cash distributions.

Another hurdle is Porsche’s valuation.

The Porsche 911 model, a luxury brand, represented last year around 13% of the total cars produced by the company.

The group also expanded under Volkswagen’s control into the SUV market with the Cayenne brand.

This rather unusual mix of car models means it is much more profitable than a premium carmaker like Mercedes-Benz.

Annual car sales are expected to grow to 7% for the 911 and 8% for Cayenne. The company is also far ahead in electric vehicles, targeted at 50% of deliveries by 2025.

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Porsche hopes to exceed a 20% operating profit margin, not far off Ferrari’s 24% this year.

For now, however, Porsche deserves a discount. With an operating margin target of 17% to 18% this year, it sits almost halfway between Mercedes-Benz’s 12% and Ferrari’s 24%, as per Refinitiv forecasts.

Source: Macrotrends

If it were to be valued similarly, Porsche would trade at 19 times the 2023 net income.

Using the average of Berenberg and Jefferies earnings forecasts, it could be worth 92 billion euros.

On another hand, Porsche also comes with some thorny issues. The company will inherit Volkswagen’s own complex governance.

The German group, whose supervisory board, dominated by labour representatives and public sector shareholders, will continue to own 75% of shares.

The two companies will also share a chief executive, Oliver Blume. Thus, VW’s influence in Porsche will be diluted by Porsche SE’s stake.

Investors in all IPOs expect a discount, as minority shareholders will have little say in the company: they have no voting rights and only two independent directors out of 20 board members. This brings the valuation towards the 74 billion euros mark.

This would still be a good result for Volkswagen, nearly matching the group’s current market capitalisation of 89 billion euros.