In what has been a lacklustre year for companies floating, there many investors might be hoping that Porsche AG (ETR:P911) and Volkswagen (VW) ignite the market on Thursday.
The luxury vehicle manufacturer is set for a valuation of €75bn, Europe’s largest float since 1999.
With 2022 having been the weakest since the financial crisis in terms of cash raised through initial public offerings (IPO) in Europe, at €4.5bn, Porsche will certainly buck the trend.
Why is Volkswagen getting rid?
VW bought Porsche in 2012, ending what at the time had been a saga lasting years.
The two agreed to merge in 2009 but faced a plethora of legal obstacles which resulted in VW buying the remaining 50.1% stake it did not already own.
Porsche’s IPO ends the German car manufacturer’s 10-year stint as its parent company, albeit it will still be the largest shareholder with a 25%-plus-one-share stake in the brand.
A statement issued in February by VW said Porsche’s IPO would be used to “accelerate the industrial and technological transformation of the Volkswagen Group.”
That includes its aim to become a pure electric vehicle manufacturer by 2035.
In that sense, getting rid of Porsche makes sense.
Porsche is and has been seen, as a vehicle for petrolheads and a ‘heritage brand’ for lovers of the brand.
That means pumping money into transitioning it alongside VW into an EV manufacturer, while possible, might not make sense financially.
Why the interest?
Luxury car makers haven’t exactly had it easy when going public.
A quick glance at what Aston Martin has done since listing nearly four years ago, down 97%, will tell you exactly that.
Add into the mix Porsche hasn’t produced a car as popular as the 911 according to industry experts, which was released nearly 60 years, and it’s tough to see why the book running was as popular as it was.
However, some of the numbers so far this year paint a positive picture.
Revenue was up 8% in the first half with underlying earnings (EBITDA) margins of 24.5%.
Peter Garnry, head of equity strategy at Saxo Bank, 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.
There may also be a sense of investors buying the brand rather than the financials, but Aston Martin shareholders know only too well what can happen when hearts rule heads in the luxury car market.
Is it the right time?
At the back end of last year, when VW was reportedly to list Porsche’s shares, it was believed to be looking for a valuation of around €100bn.
Since then, war in Ukraine sparked the current economic downturn which resulted in soaring inflation and geopolitical uncertainty creating a risk-averse market.
Seemingly, there is no end in sight to current economic conditions, so VW may be getting rid while the valuation is still high, given it is already down 25% from what it was originally targeting.
What does it mean for the market?
As mentioned, the market has not exactly been an opportunistic and buying market.
Data from Refinitiv European companies so far this year have raised €44bn, with only €4.5bn from IPOs.
Porsche’s IPO is expected to generate just shy of €20bn, which should provide some positive sentiment.
However, the flotation “is not necessarily transformative in terms of activity levels in the near-term,” said Martin Thorneycorft, head of EMEA cash equity capital markets at Morgan Stanley (NYSE:MS), quoted in Reuters.
Porsche’s IPO will be a bumper one, but is not likely to be one that will start a spree of companies coming to the market as the wider economy continues to weigh on sentiment.