With shares in Volkswagen Group (XETRA:VOW) surging in recent weeks, analysts Barclays and Bernstein among others have highlighted how canny investors are taking advantage of a discount available via Porsche Automobil Holding (ETR:PAH3).
Porsche owns a 53.3% voting stake in VW Group.
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The mark-to-market of this holding would put its fair value at €146 per share vs the current price of €84, said Barclays in a note to clients on Friday.
"Porsche shares are only +11% vs the VW ords +58% since Thursday night, offering a big revaluation opportunity, in our view."
With the performance of VW shares having "raised a lot of questions, excitement and concerns", Bernstein analyst Arndt Ellinghorst said it was worth clarifying a "couple of basic things".
VW has two share classes: 295mln ordinary voting shares under the VOW ticker and 206mln preference shares under the VOW3 ticker, which are non-voting.
The majority of VOW shares are owned by Porsche, with the state of Lower Saxony owning 20% and the Qatar Investment Authority holding a 17% stake, leaving a small free float at around 10%.
“VOW3 is the share class that most investors seek to own/trade,” Ellinghorst noted, as the free float is circa 90%, with Qatar also owning 11.2% of these.
The PAH3 discount trade involves Porsche SE, the holding company with pretty much just one asset, being the 53.3% voting stake in VW Group, with the operating business Porsche AG fully owned by VW Group.
“PAH3 trades on a sizeable and fundamentally hard to explain discount to the value of its stake in VW,” the Bernstein analyst said.
“There is an investment strategy based on the narrowing of this discount towards ‘normal’ holding company discounts somewhere in the area of 20%.”
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Due to the spike in VOW shares, the discount of the value of VOW in PAH3 last week blew out to the widest ever: 54% or around €30bn.
“We can only speculate what the reasons for this spectacular squeeze are,” he added.
“The PAH3/VOW discount investment thesis is often structured as a PAH3 long/VOW short. Due to the low free float in VOW, the risk of a short squeeze is evidently high.
“With the VW investment case gaining on popularity, this might have triggered more VOW buying, institutional and/or retail.
“Some less experienced investors might not even be aware of the differences in share classes.”