Volkswagen (VW) confirmed over the weekend that Porsche AG (ETR:P911), its subsidiary, will be listed on the market in Frankfurt, with the first day of trading 29 September.
The German manufacturer priced shares in the flotation of Porsche between €76.50 to €82.50, translating to a valuation of between €70bn to €75bn.
At the upper end of the range, that would make Porsche Europe’s third largest initial public offering (IPO) on record, an impressive achievement.
However, that top-end figure of €75bn has already been scaled back from €100bn, far less than originally expected.
And that may just be a sign of things to come.
Early details
As part of the listing, 911 million Porsche shares owned by VW will be divided into 455.5 million preferred shares and 455.5 million ordinary shares.
Up to 113,875,000 preferred shares, carrying no voting rights, will be placed with investors over the course of the IPO.
The sovereign wealth funds of Qatar, Abu Dhabi and Norway as well as mutual fund company T. Rowe Price will subscribe up to €3.68bn worth of preferred shares as cornerstone investors, at the upper end of the valuation, VW said.
Shares may be available for purchase in the UK, although like with any IPO, this is dependent on whether a broker has any access to the offering.
Early indications also suggest that retail investors could receive an allocation, but given how oversubscribed the offering currently is, they may find it difficult to get their hands on a meaningful chunk.
Some of the problems
According to industry experts, Porsche is faced with a plethora of problems.
One of the problems seems to be that company seems to be stuck in the past, relying on its ‘heritage brand’ to make sales as opposed to producing vehicles customers want, such as Tesla.
Mainly, it’s failed to match the popularity of the 911, the first edition of which was released nearly 60 years ago in 1964.
Porsche is also a brand for speedsters and while its Taycan battery-powered car has become its biggest seller, the EV competition is intense.
Tesla and Lucid already dominate the EV sector and experts reckon huge amounts of cash would need to be spent if it is to gain any meaningful market share.
Manufacturing, too, might be an issue.
Porsche, VW and Germany, in general, have been reliant on cheap Russian gas to supply their manufacturing operations.
Russia closed Nord-Stream 1, which supplies gas into the country and the rest of Europe with no date given on when the pipeline will be re-opened.
Consequentially, car manufacturers such as Porsche might potentially be forced to close this winter with rationing of energy a possibility or be kept open but at much greater costs, neither of which is ideal ahead of its IPO.
While generally appealing to the top 1% of earners, Porshe is still at risk of being bit by the cost-of-living crisis.
Peter Garnry, head of equity strategy at Saxo Bank noted its key demographic “could also significantly reduce its consumption during the ongoing energy crisis and inflationary crisis,” with cars considered a discretionary rather than an essential spend, particularly luxury cars.
Not all doom and gloom
Even so, 2022 has started strongly for Porsche.
Revenue was up 8% in the first half with underlying earnings (EBITDA) margins of 24.5%.
While this is someway behind its Italian counterparts, Ferrari (NYSE:RACE), the lure of catching up with them could entice would-be shareholders.
Garnry also believes that Porsche is a “well run-company” which generated €33.1bn in revenue and €5.3bn in operating profit prior to VW’s takeover in 2011.
Aston Martin investors know only too well what can happen when hearts rule heads in the luxury car market, Porsche needs to ensure it does not go the same way with its IPO.