Valuation depends on what Ferrari’s success can mimic, and the discount for its complex governance
Porsche’s IPO involves two tests for investors. Volkswagen is taking the luxury carmaker public to raise funds for its electric transition. The valuation depends on how much it can imitate Ferrari and how much discount should be applied to its complex governance.
The IPO adds flavor to a long saga. The company was listed until 2012, when the investment vehicle of the Porsche and Piëch families, Porsche Automobil Holding SE, merged it with VW after a failed attempt by the then independent entity to buy it.
The IPO will allow the same families to regain more control of the Taycan manufacturer with respect to its German parent company. VW will split Porsche’s capital into 911 million shares, a nod to its iconic sports car, and list a 25% stake in non-voting shares. But in time, Porsche SE will buy a similar chunk of voting stock, giving families a blocking voice on vital decisions like cash distributions.
Porsche is difficult to value. The 911 brand, which made up almost 13% of its car sales in 2021, makes it a luxury brand. But it has also expanded under VW’s control into the utility market, with the Cayenne. This unusual mix means that it is much more profitable than a high-end manufacturer like Mercedes-Benz.
Porsche could be valued like Ferrari. It should grow annual sales almost as fast, 7%-8%, and is already well ahead in electric vehicles: the goal is for them to account for 50% of deliveries by 2025. And it hopes to exceed an operating profit margin 20%, not far from Ferrari’s 24% this year.
For now, however, it deserves a discount. With an operating margin target of 17%-18% in 2022, it is almost halfway between Mercedes’ 12% and Ferrari’s 24%, according to Refinitiv. If valued similarly, almost midway between the multiples of both companies, it would trade at 19 times 2023 net income. Using the median of Berenberg and Jefferies earnings forecasts, it could be worth €92bn.
Investors expect a discount on all IPOs. And Porsche also has some thorny issues to consider. It will inherit VW’s complex governance: the German group, whose supervisory board is dominated by employee representatives and public sector shareholders, will continue to own 75% of the shares. The two companies will even share CEO, Oliver Blume.
VW’s influence in Porsche will be diluted by Porsche SE’s involvement. But the minority will have little to say: they do not have the right to vote, and only two independent directors of the 20 total. That lack of power deserves a discount. Applying a 20% haircut, roughly in line with the control premium on a takeover, brings the value down to $74bn.
This would be a good result for VW, almost equaling the group’s current market capitalization of 89,000 million. Still, Porsche’s debut will likely be just a prototype of what it might one day be worth.