Porsche IPO: the race to catch Ferrari
German sports car brand seeks luxury valuation in long-awaited float
Ferrari’s blockbuster listing in 2015 proved that carmakers can transcend their manufacturing roots and be valued as luxury businesses.
Now, with its own IPO only weeks away, the race is on for Porsche to convince investors that it belongs to the same exclusive class as the Italian thoroughbred.
“The idea [to list Porsche] has been there ever since the [Agnelli family] IPO-ed Ferrari,” said Cole Smead, an investor in Volkswagen, which owns Porsche. “It captured the imagination of what Porsche is truly worth.”
There are some obvious parallels with Ferrari. Both make powerful, head-turning sports cars sold to the world’s wealthy. Both have pledged to invest in electric models, while also keeping their much loved combustion engine models on the road for as long as possible.
Porsche has also hired Italy’s Mediobanca, which took Ferrari and luxury names such as Salvatore Ferragamo public, as a financial adviser for the IPO.
But there are also significant differences, which stem from the radically different roads the two businesses have taken over the past few decades.
Ferrari has focused exclusively on expensive sports cars, raising prices and limiting supply — hallmarks of the luxury trade.
Porsche, however, has expanded into the more affordable market and embarked on a major expansion in sport utility vehicles, propelling sales above 300,000 a year, close to Jaguar Land Rover.
Sales of its Taycan electric sports car alone are four times Ferrari’s total annual shipments.
Porsche advisers, pressing the case for luxury valuation, point out that it sells 15,000 cars in the super-luxury price bracket, similar to Ferrari, and intends to launch additional models at this level.
But that does not wash with some analysts, who say a carmaker’s claim to luxury status should be judged by its cheapest model, not its most expensive. Nobody considers Ford — which makes the $500,000 GT supercar — a luxury nameplate, they argue.
The crucial question is “how much you have to pay to access the brand”, said Philippe Houchois, an auto analyst at Jefferies.
Today, customers can buy a new Mercedes for $35,000 and a Porsche for $65,000, but they will have to pay upwards of $250,000 for a Ferrari, he added.
Brand positioning aside, there are other big differences between the two.
Porsche, for example, has said it is targeting a profit margin of between 17 and 19 per cent in the mid term, and more than 20 per cent in the long term. This is a long way short of Ferrari’s 25 per cent margin in 2021 and it says it wants to increase that again this decade.
The German group is also a long way behind its rival on corporate governance.
Ferrari is run independently of its former parent Fiat and the Agnelli family and trades freely on the open market.
In contrast, retail investors are being offered only 10 per cent of Porsche’s shares and they do not carry voting rights. The remaining 2.5 per cent on sale is likely to be bought by the Qatar Investment Authority, one of VW’s largest shareholders.
At the same time, the Porsche-Piëch family which is VW’s largest shareholder, is being offered 25 per cent of the voting shares, which puts them in effect back in charge of an asset they lost direct control of in 2012 when VW bought Porsche in a reverse takeover.
It also means that the business remains firmly enmeshed in VW’s convoluted corporate governance structure — a web of different interests including the state of Lower Saxony, unions and the Porsche-Piëch’s investment vehicle — which have deterred some serious investors from buying the stock.
“The Porsche IPO bears the hallmarks of inadequate corporate governance at the VW Group,” said Ingo Speich, a portfolio manager at institutional investor Deka, a top 20 VW shareholder.
“First and foremost, it is about the owning [Porsche-Piëch] family being able to invest in Porsche ordinary shares and continue to call the shots.”
At the same time, VW recently replaced chief executive Herbert Diess with Porsche’s own boss Oliver Blume, who will continue to hold both roles after the listing.
Blume has insisted that VW and Porsche “have the same interests”, although they have recently taken different paths on software and autonomous driving. Some investors have backed his dual mandate, one arguing that the arrangement “might speed up things”.
Nonetheless, such decisions contrast unfavourably with Ferrari, said Houchois.
“If you’re going to use Ferrari as a benchmark, the returns [at Porsche] are half, the governance is unclear and the liquidity is a challenge,” he said. “There are a lot of Ferrari features in Porsche, but they are too big and too accessible to be truly compared.”
Aware of these criticisms, Porsche executives stress the advantages of its size and strategy of targeting a bigger market.
“Ferrari is a luxury niche player,” Porsche chief financial officer Lutz Meschke said in July. “We can benefit from our economies of scale. That’s a big difference.”
For now, investors seem convinced to a certain extent.
While advisers expect a 30-40 per cent corporate governance discount on Ferrari’s valuation, this would still make the Porsche listing one of Europe’s largest ever, valuing the business above the likes of Mercedes-Benz at around €80bn.
The IPO could also follow the trajectory of Ferrari’s flotation, which priced at the top of the range as investor demand outstripped shares on offer, then fell in the first few weeks after the sale before rising in subsequent months, the advisers added.
One prominent Tesla investor, who is considering buying, expects the Porsche IPO to be a success, achieving a valuation at the higher end of estimates of between €60bn and €90bn.
Bankers marketing the deal also insist questions about corporate governance are unlikely to undermine sales.
“Corporate governance is certainly the focus topic [among potential Porsche investors],” said one banker involved in the IPO, “but it’s not a deal-breaker”.
“We should not expect VW to become a governance leader, we have to accept it the way it is,” commented a major VW shareholder.
“Porsche is an outstanding asset. This is what people will look at in the end, the fundamental numbers.”