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People love Porsche cars, but would they love Porsche stock?

Volkswagen (VWAGY)The world’s largest automaker by sales volume and parent company of Porsche . The multi-billion dollar financing is expected to help both companies prepare for the future of electric vehicles.

Porsche has boosted sales and profits in the most difficult environment for the world’s automakers. In 2021, for the first time, he will sell more than 300,000 cars, with the all-electric Taycan his sedan surpassing sales of his classic 911 model. This was followed by excellent performance throughout the first half of the year.

Now Volkswagen hopes a Porsche IPO can buck the trend in the most difficult IPO market in 30 years.

“It should be the definitive IPO on the continent and globally this year,” says Matt Kennedy, Senior Market Strategist at Renaissance Capital, Renaissance initial public offering specialist and manager. (IPO) ETFs. “It’s a tough market, but it’s a key asset, so we’ll see.”

Will Investors Jump Into Porsche Stock?

The brand is a strong draw for investors looking for large, stable companies with solid growth, but there are caveats. Fears of a global recession are holding back investors, as is the lack of voting rights for buyers of new shares. Certain management teams at Volkswagen and Porsche and it concerns governance clashes.

Volkswagen plans to sell 25% of Porsche’s non-voting preferred shares on the Frankfurt Stock Exchange in late September or early October. It warned that the completion of the public offering could be “subject to further developments in the capital markets.”

Porsche’s IPO will fund the push for electric vehicles

Part of the proceeds from the Porsche IPO will fund Volkswagen’s ambitious €50 billion (five-year) spending plan to build more battery factories to ramp up production of electric vehicles. help. If the public offering is completed, Volkswagen will hold a special meeting in December to inform its board of directors to pay shareholders a special one-time dividend totaling 49% of the proceeds from the IPO to be distributed in early 2023. approval will be sought.

Morningstar Senior Equity Analyst Richard Hilgart values ​​Porsche’s IPO at between €80 billion and €100 billion, valuing the company as net income, taxes, depreciation, earnings before amortization or EBITDA. Valuations based on multiples of 8 to 10 times the value of Porsche’s shares are likely, he said. If the share price is set high, it will raise €19 billion. This would be his largest German IPO since Deutsche Telekom went public in 1996, and would value him at $13 billion. His IPO of Italian energy company Enel in 1999 raised his $17 billion and currently ranks as his largest European IPO ever.

Prior to the public offering, Volkswagen redesigned Porsche’s capital structure into two share classes. 50% non-voting preferred stock and 50% voting common stock. Volkswagen also has a dual share class structure of 59% voting ordinary shares and 41% non-voting preferred shares.

The Porsche family takes back a more prominent role

Porsche’s heirs through the investment holding company Porsche Automobile Holding (Pohy)will acquire up to 25% and 1 share of common stock with voting rights at the public offering price plus a 7.5% premium. The holding company also receives 25% of the non-voting shares. The holding company will now hold 25% of Porsche’s shares. Special rights attached to voting shares allow families to block proposals that a majority might support.

Porsche Holding owns 31.9% of Volkswagen’s shares, and Volkswagen owns 100% of Porsche’s shares. The planned special dividend will help Porsche Holding pay for the purchase of voting shares.

After the IPO, Volkswagen will continue to own the majority of preferred and ordinary shares in Porsche.

Thirteen years after being forced to sell the sports car maker to Volkswagen, the Porsche family would gain more control over the company Ferdinand Porsche founded in 1931. During the financial crisis of 2007-2009, when banks drew down Porsche’s line of credit and were unable to raise any more money, it was possible for Porsche to take over Volkswagen by secretly building shares using options and derivatives. Attempted to acquire Swagen.

Volkswagen’s management told reporters last week that the Qatar Investment Authority would buy a 4.99% stake on the open market under a “cornerstone investment agreement” in which investors pre-subscribe for a certain amount of shares prior to an IPO. said he plans to buy Qatar is one of Volkswagen’s largest shareholders, holding 17% of his voting ordinary shares.

Timing of Porsche Stock IPO Concerns

In pushing for its IPO, Volkswagen has failed to demonstrate the precision engineering that characterizes its vehicles.

Volkswagen first said it was considering an IPO for Porsche on February 24, the day Russia invaded Ukraine. The company announced it would go ahead with its IPO on Sept. 5, when Russia cut gas supplies to Europe through the Nordstream 1 pipeline. Investors are questioning the timing of deals as global markets teeter on the brink of recession amid soaring inflation and a looming energy crisis in Europe sparked by war.

There are also concerns about corporate governance. Porsche chief executive Oliver Blume took over the helm of Volkswagen on September 1 following the dismissal of Herbert Diess. Delays in his Cariad software, a subsidiary that did not keep the model launch on schedule, forced Mr. Diess to retire. Arno Antitz, Chief Financial Officer of Porsche, is now also Chief Operating Officer of Volkswagen.

Daniel Roska, senior research analyst at AllianceBernstein, said, “In the same way that companies are trying to get out of Volkswagen AG, investors say they like ‘CEO dilution’. I don’t think so,” he said. “Porsche AG has a problem with overlapping governance and personal interests between Volkswagen, Porsche Holding SE and Porsche. Understand how sharing a CEO between Porsche AG and Volkswagen AG at this time is a good idea for investors in Volkswagen, or potential investors in Porsche AG. is difficult.”

Morningstar’s Hilgart supports the use of an IPO to finance Volkswagen’s planned special dividend and its foray into electric vehicles, but said he was concerned about “the timing of the IPO and the current management structure.” said he was concerned.

“Market valuations in the automotive sector have been negatively impacted by a potential recession in key markets, chip shortages, the Ukraine crisis, rising raw material costs, higher pumped prices and other inflationary cost pressures. says Hilgert.

He also said Bloom’s dual role as CEO of both companies “raises conflict of interest concerns.”

Still, Hilgart believes the IPO is “highly likely” to go through. As a result, he lowered his estimate of the fair value of Volkswagen shares to reflect a 25% non-controlling stake in Porsche. At his $18.53 these days, ADR is trading at a 44% discount to his $33, which is his revised fair value estimate, and he’s selling his five-star rated Volkswagen as “persuasive value”.