Emma Victoria Farr
LONDON, July 20 (Reuters) – Porsche may be forced to start the listing process at a lower-than-expected valuation amid mounting difficulties for the German auto group, two people close to the file said.
The prospect of a lower valuation would be a setback for the families behind the company, which are pushing for an IPO to finance a costly transition from combustion-engine sports cars to electric ones.
Sources say initial valuations of Porsche, controlled by Europe’s biggest carmaker Volkswagen, valued at more than 80 billion euros, are high.
They believe a lower valuation may be needed in the face of the obstacles of war, threats of recession and energy shortages to secure what could be one of the world’s largest IPOs.
Porsche may have to settle for 60 billion euros, one of the sources said, adding that the owners would not accept anything less.
Another source also added that the automaker’s owners have different views on the meaning that should be given to the brand. A third person involved in the preparations said investors have not yet agreed 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 stable” and “well prepared for the next steps.”
Porsche estimated its turnover to be over 38 billion in 2022, up from 33 billion in 2021, despite a 5% drop in deliveries in the first half of this year.
However, some investors are hesitant.
Last month, Bernstein Research estimated Porsche’s “fair value” at around €75 billion, calling it “a great company, but [ce n’est] not Ferrari” because of the latter’s higher margins.
One of Volkswagen’s 20 largest shareholders told Reuters he viewed the IPO poorly because only a small number of shares would be sold, giving new entrants little leverage.
Porsche would be better off remaining part of the Volkswagen Group, while an IPO would not create value in the long term, added the latter, who spoke on condition of anonymity.
Earlier this week, Oliver Blum, CEO of Porsche, and Lutz Meschke sounded confident in their presentations.
Business has been strong during the pandemic, Oliver Blum said. “There is a lot of demand in the capital markets and a lot of money to invest.”
Bankers handling the deal intend to examine market conditions in late August, with a decision by Porsche’s board of directors and an IPO document likely to be published soon after.
A Porsche spokesman said there were “no new decisions” on the IPO plans, while Volkswagen declined to comment.
SWITCHING TO ELECTRICITY
The push for the IPO comes as German automakers look to cut ties with diesel and gasoline engines in favor of quieter, greener electric models.
Porsche wants 80% of its car sales to be electric by 2030, roughly four times the current level, and Volkswagen has also begun this ambitious transition to electric cars, batteries and software. The IPO is intended to finance this change.
If the listing does not happen or if it happens only at a discount, there will be less to invest.
The IPO would also change the balance of power at Europe’s biggest automaker, Volkswagen, which controls Porsche after a failed takeover attempt more than a decade ago.
However, the economic obstacles are significant.
According to Refinitiv, just $2.3 billion was raised in German capital markets this year, down 90% from the previous year. Only 12.5% of Porsche’s shares will be free float, and valuations for European carmakers have been falling since early 2022.
Manufacturers of luxury cars were particularly hard hit. Aston Martin’s market capitalization has lost 57% of its value since the start of 2022, while Ferrari’s has lost nearly a third.
Porsche can be compared to highly regarded luxury brands such as French luxury house LVMH, but it is still overshadowed by Tesla, says a banker involved in the deal.
(Additional reporting by Christoph Steitz in Frankfurt, Victoria Waldersee in Berlin and Lucie Raitano in London; French editing by Alizee Degors Editing by Kate Entringer)