Porsche IPO promises to be challenging, Company news

Emma Victoria Farr

LONDON, July 20 (Reuters) – Porsche may be forced to start the listing process on the basis of a lower-than-expected valuation as difficulties mount for the German automaker, two people close to the case said.

The prospect of a lower valuation will be a setback for the families at the helm of the company, who are pushing for an IPO to finance a costly transition from combustion-powered sports cars to electric ones.

Initial estimates valuing Porsche, controlled by Europe’s largest automaker Volkswagen, at more than 80 billion euros, are lofty, the sources said.

They believe that in the face of the hurdles of war, the threat of recession and energy shortages, a lower valuation may be needed to secure what could become one of the largest IPOs in the world.

Porsche may have to settle for 60 billion euros, one source said, adding that the owners would not settle for anything less.

Another source also added that the automaker’s owners have different views on brand value. A third person involved in the preparation said that investors have yet to agree on a valuation formula.

Porsche executives presented their business plan to investors this week. Lutz Meschke, chief financial officer, told reporters that the automaker is “financially sound” and “well prepared for the next steps.”

Porsche estimated its turnover at more than 38 billion in 2022, up from 33 billion in 2021, despite a 5 percent drop in deliveries in the first half of this year.

However, some investors are still hesitant.

Last month, Bernstein Research estimated Porsche’s “fair value” at around 75 billion euros, calling it “a great company, but [ce n’est] not a Ferrari” due to the latter’s higher margins.

One of Volkswagen’s top 20 shareholders told Reuters it does not view the IPO positively as only a small number of shares will be sold, giving the new entrants little leverage over shareholders.

Porsche would be better off staying within the Volkswagen Group while the IPO would not “create value” in the long run, added the latter, who asked not to be named.

Earlier this week Oliver Blume, CEO of Porsche, and Lutz Meschke sounded confident in their presentations.

During the pandemic, business has been strong, according to Oliver Blume. “There is a big need in the capital markets and a lot of money to invest.”

The bankers involved in the deal intend to study market conditions at the end of August, when the decision of the Porsche board of directors and the IPO document, which could be published shortly thereafter, will be made.

A spokesman for Porsche said there were no “new decisions” regarding the IPO plans, while Volkswagen declined to comment.

SWITCHING TO ELECTRICITY

The push for the IPO comes as German automakers look to break the ties with diesel and petrol engines to move towards quieter, more environmentally friendly electric models.

Porsche wants 80% of car sales to be electric vehicles by 2030, about four times the current level, while Volkswagen has also embarked on this ambitious transition to electric vehicles, batteries and software. The IPO is intended to fund this change.

If the listing does not take place or passes only at a discount, there will be less investment.

The IPO will also change the balance of power in Europe’s largest automaker, Volkswagen, which controls Porsche after a failed takeover attempt more than a decade ago.

However, economic obstacles are significant.

Only $2.3 billion was raised in Germany’s capital markets this year, down 90% from the previous year, according to Refinitiv data. Only 12.5% ​​of Porsche’s shares will be in free float, with European automakers’ valuations falling since early 2022.

Luxury car makers have been particularly hard hit. Aston Martin’s market capitalization has lost 57% of its value since the beginning of 2022, while Ferrari’s has lost almost a third.

Porsche can be compared to highly acclaimed luxury brands like French luxury house LVMH, but it still remains in the shadow of Tesla, says a banker involved in the case.

(Additional reporting by Christoph Steitz in Frankfurt, Victoria Waldersee in Berlin and Lucy Raitano in London; French version by Alize Degors, edited by Kate Entringer)