Porsche IPO has two investor roadblocks to clear

LONDON, Sept 17 (Reuters Breakingviews) - Porsche’s initial public offering sets investors two tests. Volkswagen is listing the luxury sports-car maker to raise funds for its electric transition. Porsche’s valuation rests on how closely it can mimic peer Ferrari, and what discount should be applied to its complex governance.

The IPO adds spice to a long-running saga. The company was public until 2012, when the Porsche and Piëch family’s Porsche Automobil Holding SE vehicle merged it with Volkswagen after a failed attempt by the then independent entity to buy VW out. The listing will allow the same families to claw back more control of the Taycan maker from its German parent. Volkswagen will split Porsche’s equity into 911 million shares, a nod to its iconic sports car, and list a 25% stake in non-voting shares. But 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.

Porsche is tricky to value. The 911 marque, which constituted nearly 13% of total cars shipped last year, makes it a luxury brand. But the group also expanded under Volkswagen’s control into the SUV market with the Cayenne. This unusual mix means it is much more profitable than a premium carmaker like Mercedes-Benz.

Porsche could one day be valued like Ferrari. It should grow annual sales nearly as quickly at between 7% and 8%, and is already far ahead in electric vehicles: battery rides are targeted at 50% of deliveries by 2025. And it 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. If it were to be valued similarly, almost halfway between the two companies’ valuation multiples, Porsche would trade on 19 times 2023 net income. Using the average of Berenberg and Jefferies earnings forecasts, it could be worth 92 billion euros.

Investors in all IPOs expect a discount. And Porsche also comes with some thorny issues to analyse. It will inherit Volkswagen’s own complex governance: the German group, whose supervisory board is dominated by labour representatives and public sector shareholders, will continue to own 75% of shares. The two companies will even share a chief executive, Oliver Blume.

VW’s influence in Porsche will be diluted by Porsche SE’s stake. But minority shareholders will have little say: they have no voting rights, and only two independent directors out of 20 board members. That lack of power merits a discount. Apply a haircut of 20%, roughly in line with a skinny control premium in a takeover, and the value slips to 74 billion euros.

That would still be a good result for Volkswagen, nearly matching the group’s current market capitalisation of 89 billion euros. Still, Porsche’s debut will probably be just a prototype of what it could one day be worth.

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

CONTEXT NEWS

Volkswagen’s supervisory board will meet on Sept. 18 to move forward with the planned initial public offering of luxury carmaker Porsche, Reuters reported on Sept. 15.

Volkswagen will divide Porsche’s shares into voting ordinary and preferred shares, which carry no voting rights. A quarter of the preferred shares will be listed, while 25% plus one share of the ordinary shares will be sold to Porsche Automobil Holding SE, the vehicle of the Porsche and Piëch family.

Porsche’s valuation is likely to be between 70 billion euros and 80 billion euros, Reuters reported, citing a source close to the matter. Details on the price range and valuation are likely to be announced after the Sept. 18 meeting.