Now that the dust has settled on the USD73bn (GBP64.2bn) Porsche [DAX:P911] IPO we can analyze whether the luxury car manufacturer and its parent Volkswagen have swerved into the overtaking lane, or are still stuck in traffic.
The IPO gave the market an injection of high-octane fuel, at a time when external pressures – rising energy prices, global inflation, suppressed economic growth, rising food prices and a war in Europe – have subdued the market.
The Porsche IPO was the Germany’s biggest IPO and the biggest the European market had seen since Glencore came to market in 2011 with a USD11bn offer and will become the fifth-biggest IPO deal in European history.
Debuting on Thursday 29th September on the DAX – Germany’s stock exchange – at EUR82.50 (GBP71.78) and in its first day of trading rose 2.9% to close the day at EUR84.88. By mid-morning today (4th October) Porsche was trading at EUR83.04.
There was many-a-naysayer in the financial community who had poured cold water on the IPO and advised Volkswagen not to do it for various reasons. Some cited the market conditions. Others said the price was too high. Others found the structure of the shareholding too complicated.
Porsche valued at nearly as much as its parent
But in pre-marketing, Volkswagen had received enough orders to cover the IPO multiple times at EUR76.50 to EUR82.50 but the temptation to own an iconic bit of luxury real estate was too much for many investors, and Volkswagen justifiably exploded ticker tape and splashed magnums of champagne around liberally, as if they were atop the podium on the final race of the F1 Circuit. Does this mean that Porsche is now coming for Ferrari’s crown in that particular racing championship?
However, one fly in the champagne flute was that as Porsche’s stock was rising, Volkswagen’s was going the other way. Part of it may be investors putting down their old toy car and wanting to play with the shiny new boxed toy. Although Volkswagen raised around EUR20bn, which will help finance the German carmaker’s push into electric vehicles, the IPO highlighted the latent value in the VW brand, in that Porsche was valued as nearly as much as its parent company. What’s left in the VW brand is primarily Skoda and Audi (and Cupra and Seat) – both a bit more mass-market than Porsche. So, through the IPO VW started to look a lot more like a Skoda (not that Skodas are bad cars – they’re just not a luxury, high-end vehicle brand) than a Porsche.
Snobbery aside, Volkswagen is a sum of its parts and what remains as today is a EUR92bn car making business, against a EUR75bn enterprise value for Porsche trading at 1.4x operating profits. Add in JVs with Chinese technology companies and its financial services business VW should be a lot more valuable than its valuation implies.
Porsche and Piëch family office
However, an issue highlighted by the Porsche IPO is VW’s own corporate structure – comprising of the Porsche and Piëch family office, which owns the majority of VW shares through Porsche Automobil Holding SE. The bit that’s left is the Volkswagen holding company, which as a holding company is discounted by the market and has actually lost a fair bit of control over the Porsche brand as a result of that rather complicated structural split analysts were complaining about pre-IPO.
The Porsche and Piëch family office actually managed to increase control over both VW and Porsche as a result of the split between voting- and non-voting shareholdings in the IPO shakedown. Of the IPO, the 113.9 million shares sold in the IPO carry no voting rights, and retail investors make up only 7.7% of the shares made public, so you could see this a joint money and power grab, that has worked out well for the family office and given VW a bit of play money to start rolling EVs off the production line. Clever marketing.
VW and ‘new’ Porsche will have the same CEO
Volkswagen and ‘new’ Porsche will have the same CEO, and it is not inconceivable to imagine that Oliver Blume might have an innate desire to make Porsche’s debut in Frankfurt as a resounding success – as after all that is what posterity will judge him on – so VW could lose out in any conflicts of interest between new and old, which isn’t great for VW shareholders.
What VW and Porsche have now got is a lot of deep-pocketed new friends on board, including sovereign wealth funds, the Qatar Investment Authority, Abu Dhabi’s Mubadala Investment Company and ADQ, Norway’s Statens Pensjonsfond as well as T.Rowe Price and a legion of institutional investors. And this kind of backing is what the company needs as its products start driving on different tracks and in different directions.
The Electric Vehicle transition
Retail is trending towards a transformation to electric vehicles – a market that is expected to encompass all and one that is quite expensive to enter and become a global brand. Petrolheads and rich pensioners will always have an affinity for something the goes ‘Vroommm!’ over something that goes ‘Whirrrr!’, but they are not the mass-market.
The first few days have been a success for Porsche. Yes, the stock has been dragged down by the prevailing climate of the Eurostoxx market routing, global economic conditions are very ropy, and the listing launched into a German economy in turmoil with red hot inflation and people burning the forests down to keep warm. But given the lack of action in the markets, the issue acted as a magnet for a lot of the floating capital that was looking for a new home.
The IPO was in market terms a one-off, and its likely the market will freeze up again soon. Getting an issue off at the top of the range in this climate and banking the proceeds to put into EV development is a bit of a masterstroke for Volkswagen. The car manufacturer now needs to use the opportunity it has created to forge itself as the leading provider of EVs now, or else it might look like selling the jewel in the crown was a foolish move.
