On your marks – Porsche may jumpstart H2 IPO race, but valuation talk complex

Data Insight ECM Pulse 22 August

On your marks – Porsche may jumpstart H2 IPO race, but valuation talk complex

EMEA’s equity capital markets are preparing for the final laps of 2022 and there is a chance that the blockbuster IPO of Porsche could still brighten this year’s bleak landscape. But there are several twists in the road to overcome.

The talk among advisers working on the deal is that VW [ETR:VW] is committed to a 2H22 IPO of Porsche, despite the difficult markets seen so far.

The aim is to launch the deal in October, with formal pre-deal investor meetings starting off in late August, early September, said a banker close to the deal.

The transaction is also arguably seen as unrelated to the travails of the rest of the market, claim sources speaking to ECM Pulse. “Porsche is so large and unique that I am not sure it has any read-across for other IPOs,” an investor added.

Racing rivals

Pre-deal talk has often benchmarked Porsche to Italy’s Ferrari [NASDAQ:RACE], as reported by this news service earlier this year.

Both are luxury car brands with strong motor racing pedigree. Porsche is a multiple champion at Le Mans and is widely reported to be about to announce a deal with Red Bull to take a 50% stake in the Formula 1 team from 2026.

A Ferrari multiple though would give Porsche an enterprise value of around EUR 141bn based off the VW’s 2021 results where Porsche reported an “operating result before special items” at around EUR 5bn.

The company is also very different from the Italian stallion. According to its latest figures, Porsche delivered 301,915 cars to customers in 2021, well above the 11,155 cars delivered by Ferrari. Ferrari’s high 28x 2021 EV/EBITDA multiple, according to Dealogic, is driven by its exclusivity, in line with other luxury brands.

But Porsche is far more exclusive than other high-end automakers like Mercedes-Benz [ETR:MBG], another Formula 1 rival, which delivered around 2m vehicles in 2021 and trades at a 2021 EV/EBITDA multiple of 7.9x, according to Dealogic. A Mercedes multiple would only give Porsche a valuation of around EUR 39.5bn.

Porsche is looking at a valuation multiple at a premium to Mercedes but at a discount to Ferrari, said a second banker working on the Porsche IPO. Valuation discussions so far have ranged from above EUR 100bn to below EUR 80bn, added a third banker close to the deal.

If Porsche were to trade right in the middle of Mercedes and Ferrari at IPO, it would be valued at an EV/EBITDA multiple of 18x, around EUR 90bn.

But the investor noted that the figure was high and that a lot of talk was placing Porsche between the EUR 39.5bn and the EUR 90bn mark, closer to Mercedes than Ferrari.

A lower valuation was reflective of the economic environment as well as concerns over Porsche’s corporate governance, he added. An announcement in July that Porsche CEO Oliver Blume was also taking over as CEO of VW raised some eyebrows among investors.

“It was a very strange move given that announcement was just after a capital markets day focused on the independence of Porsche from the parent,” the investor added.

Electric rodeo

An important part of Porsche’s equity story is its positioning in the luxury electric vehicles market. Electric vehicle specialists such as Elon Musk’s EV behemoth, and occasional meme stock, Tesla [NASDAQ:TSLA] will also be among comparables.

One of the bankers on the deal said Tesla could be an interesting peer for the company but the other dismissed the idea and said investors might be keen to look at Volvo [STO:VOLV-B], listed last year by China’s Geely Automobile Holdings [HKG:0175] as a possible marker for Porsche.

While Volvo is not in the same league as Porsche in terms of luxury appeal, and will trade on a very different multiple, its electric strategy and approach to its 2021 IPO, might hold some appeal for those prepping the German firm.

Although the IPO market was far healthier in late 2021, it was still coming under pressure after a flood of deals, and several flops earlier in the year had tempered investor appetite for new listings.

Like Porsche, Volvo was a high-profile listing, the subject of extensive reporting and speculation well before the IPO launch.

The issuer decided to be conservative on execution pricing at the bottom of its range and cutting the size of the deal. It has paid off in trading, with the Swedish auto maker trading around 47% above its IPO price, despite global equity market volatility.

Such performance is a far cry from the hyped listing of US electric vehicle maker Rivian Automotive [NASDAQ: RIVIN], down around 54% from its November IPO price at the start of August 22.

It is also miles away from UK luxury automaker Aston Martin [LON:AML], which pitched itself as comparable to Ferrari at its IPO. This proved too ambitious and the stock was down almost 75% a year on from its debut.

Even Ferrari, up over 300% from its 2015 IPO price, began life as a listed company slowly, just about breaking even a year on from IPO.

Given VW’s significant Porsche holding post-listing, it will likely want to prioritise aftermarket performance. For the Porsche family, it is also beneficial to be careful on the valuation, given their public commitment to invest at a 7.5% premium to the final IPO price.

The price, however, may not be fully determined by the market if a cornerstone enters the deal. There have been some pre-deal conversations with Qatar Investment Authority (QIA), already a major shareholder in VW, as well as some Canadian pension funds, according to the second banker.

“If QIA wants to take a third of the book, then that is pretty much going to determine the price,” said the investor.

VW is still considering the possibility of a Porsche listing and will update the market after the summer, a spokesperson said.

QIA did not respond to requests for comment.

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