Porsche IPO leaves VW stock in Skoda territory

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A technical employee fixes a VW sign at the production line for the electric Volkswagen model ID.5 car in Zwickau, Germany, January 27, 2022. REUTERS/Matthias Rietschel

LONDON, Sept 29 (Reuters Breakingviews) - Volkswagen (VOWG_p.DE) investors should be cheering. The German carmaker’s listing of its Porsche subsidiary has been a rip-roaring success: it priced at the top end of the range amid a volatile market. By selling a 25% stake parent VW will raise 19.5 billion euros, much of which can help its electric vehicle transition, and they now have a market-endorsed value for the luxury unit. Unfortunately, the net effect is to make Volkswagen look more like a Skoda.

A key side benefit of the listing was to crystallise the latent value within Volkswagen, a bit like the 2016 Ferrari (RACE.MI) spinoff did with Fiat Chrysler, now Stellantis . Yet so far, the benefits seem modest. Porsche’s market capitalisation nearly matches that of its parent, which was 81 billion euros on Thursday morning.

The German group could be worth a lot more, according to a rough sum-of-the-parts calculation. Assume the rest of its automotive business, which includes volume brands like Skoda and higher-end Audi, is valued at the average of peers Stellantis and Mercedes-Benz (MBGn.DE), or 1.4 times 2023 operating profit. That’s around 17 billion euros on Berenberg numbers. The total carmaking operations would be worth 92 billion euros, using a 75 billion enterprise value for Porsche, and the cash raised through the IPO.

Now throw in the book value of its financial services unit, worth 39 billion euros. And add the Chinese joint ventures, which could be worth 17.4 billion euros if valued on the same 8 times earnings multiple as peer SAIC (600104.SS), using Berenberg’s 2023 net income forecast. Finally take off hybrid debt, pension liabilities and add back cash and VW’s equity value could be 134 billion euros, some 65% above the current level.

The disconnect is likely down to VW’s own governance. Its largest shareholder is the Porsche and Piëch family vehicle, Porsche Automobil Holding SE (PSHG_p.DE), a different entity to the newly listed Porsche AG. And VW’s board is dominated by labour representatives and local politicians, with no voting rights for ordinary shareholders. By holding onto a 75% stake, VW will look more like a holding company, which typically merit a discount to factor in the difficulty of selling a stake and reduced say.

The IPO could have been arranged in a way which saw the Porsche and Piëch family reduce its hold on VW, while increasing control of Porsche. Instead, they keep a grip of both. Porsche shares will now be split into voting and non-voting rights, with a quarter of the non-voting ones listed, and a similar amount of voting stock sold to Porsche SE.

That means VW shareholders have actually lost a little control. Meanwhile, both VW and the luxury carmaker will share the same chief executive, Oliver Blume, potentially creating conflicts of interest. Until these issues get resolved, VW’s valuation will stay in the slow lane.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

CONTEXT NEWS

Shares in sports car maker Porsche AG rose modestly after listing on Sept. 29, while those of parent Volkswagen fell nearly 5%.

The listing valued Porsche at the top end of the price range at 82.50 euros for each preference share, implying a market capitalisation of 75 billion euros. Porsche listed 25% of its non-voting preference shares, while 25% plus one share of its voting stock will be sold to Porsche Automobil Holding SE, Volkswagen’s largest shareholder and the vehicle of the Porsche and Piëch family.

Porsche AG shares were trading at 85.90 euros as of 1000 GMT, up 4%. Volkswagen’s preference shares were down 3%, at 133.70 euros, after previously being down around 5%.

Editing by George Hay and Oliver Taslic

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