This Porsche Is No Bargain - WSJ
09-10-2008, 12:14 PM
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This Porsche Is No Bargain - WSJ
Seems like this article would be best served to the Cayenne crowd, being as we are the bulk of the connection with VW.
This Porsche Is No Bargain
By SEAN WALTERS
September 10, 2008 11:05 a.m.
German cars carry a reputation for reliability, less so the earnings growth of the companies which make them. BMW and Daimler recently warned on profits. Now Porsche might not be the bargain it looks at first glance.
By investing in Porsche's preferred stock -- the company has no ordinary stock listed -- investors seem to be getting exposure to Volkswagen's highly-rated business for free. The enterprise value of Porsche's 30.6% stake in VW is worth more than 35 billion euros. Porsche's enterprise value is 19.5 billion euros.
But appearances are deceptive. VW's share price is inflated by speculation about the very takeover activity Porsche has initiated, not all of which may be warranted. Supporting the share price is Porsche's intention to secure majority ownership of VW by exercising options at some stage to buy another 20% stake. The investors Porsche has written the options contracts with may have to buy VW stock on the open market to deliver them to Porsche.
However, these investors may already own VW stock, limiting the pent-up demand for the shares. So there's downside risk to VW's valuation when its stock is trading at double the forward earnings multiples of its rivals.
To see how much, look at VW's preferred shares. They have typically traded within about 10% of the price of its ordinary shares for the past five years. They now trade at around a 50% discount. Like most preferred stock, they have equal economic value to ordinary shares but don't carry voting rights, so their price is less affected by Porsche's takeover approach.
If you use the preferred shares as a guide and slap a holding company discount on VW's contribution to Porsche's earnings -- using the 30% discount regularly placed on Nissan's earnings contribution to partner Renault -- then Porsche's business has an enterprise value of around 11.5 billion euros, equivalent to a little more than 8X estimated 2009 operating earnings.
That valuation is a better reflection of Porsche's own auto business, judging by the 17% decline in its sales in the U.S. in the year to end-August from the same period last year.
This Porsche Is No Bargain
By SEAN WALTERS
September 10, 2008 11:05 a.m.
German cars carry a reputation for reliability, less so the earnings growth of the companies which make them. BMW and Daimler recently warned on profits. Now Porsche might not be the bargain it looks at first glance.
By investing in Porsche's preferred stock -- the company has no ordinary stock listed -- investors seem to be getting exposure to Volkswagen's highly-rated business for free. The enterprise value of Porsche's 30.6% stake in VW is worth more than 35 billion euros. Porsche's enterprise value is 19.5 billion euros.
But appearances are deceptive. VW's share price is inflated by speculation about the very takeover activity Porsche has initiated, not all of which may be warranted. Supporting the share price is Porsche's intention to secure majority ownership of VW by exercising options at some stage to buy another 20% stake. The investors Porsche has written the options contracts with may have to buy VW stock on the open market to deliver them to Porsche.
However, these investors may already own VW stock, limiting the pent-up demand for the shares. So there's downside risk to VW's valuation when its stock is trading at double the forward earnings multiples of its rivals.
To see how much, look at VW's preferred shares. They have typically traded within about 10% of the price of its ordinary shares for the past five years. They now trade at around a 50% discount. Like most preferred stock, they have equal economic value to ordinary shares but don't carry voting rights, so their price is less affected by Porsche's takeover approach.
If you use the preferred shares as a guide and slap a holding company discount on VW's contribution to Porsche's earnings -- using the 30% discount regularly placed on Nissan's earnings contribution to partner Renault -- then Porsche's business has an enterprise value of around 11.5 billion euros, equivalent to a little more than 8X estimated 2009 operating earnings.
That valuation is a better reflection of Porsche's own auto business, judging by the 17% decline in its sales in the U.S. in the year to end-August from the same period last year.
09-10-2008, 05:18 PM
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Pepper Bartender
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Yetis, given the current economic and market conditions on stock valuations due to the financial and mortgage "crisis", your point to the Cayenne forum members is........ ?
A. Porsche shouldn't have bought any VW stock?
B. Porsche should buy more low-priced VW stock?
C. Porsche should change their name to Porsvwche?
D. Porsche should put lipstick on their VW pig?
E. None of the above, I just like posting every now and then and reading the WSJ
A. Porsche shouldn't have bought any VW stock?
B. Porsche should buy more low-priced VW stock?
C. Porsche should change their name to Porsvwche?
D. Porsche should put lipstick on their VW pig?
E. None of the above, I just like posting every now and then and reading the WSJ
09-10-2008, 10:23 PM
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Yetis, given the current economic and market conditions on stock valuations due to the financial and mortgage "crisis", your point to the Cayenne forum members is........ ?
A. Porsche shouldn't have bought any VW stock?
B. Porsche should buy more low-priced VW stock?
C. Porsche should change their name to Porsvwche?
D. Porsche should put lipstick on their VW pig?
E. None of the above, I just like posting every now and then and reading the WSJ
A. Porsche shouldn't have bought any VW stock?
B. Porsche should buy more low-priced VW stock?
C. Porsche should change their name to Porsvwche?
D. Porsche should put lipstick on their VW pig?
E. None of the above, I just like posting every now and then and reading the WSJ
I think C & D are the closest.
09-11-2008, 09:10 AM
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