Key points:
- VW has announced the IPO range for the Porsche float
- This is clearly going to go well
- But how well, is the excitement already in the price or still to come?
Volkswagen AG (ETR: VOW3) has announced the outlines of the upcoming float of Porsche. Clearly Porsche is a useful and profitable car company but that's not enough to tell us whether we should be trying to buy in at the IPO. What matters is what is the offer price as against the intrinsic value of what is on offer. Or even, if we want to think of it in this manner, how many petrol heads are going to pile in because it's Porsche? That is, we face the usual problem with anything iconic. How much of the price is going to be made up of the normal, boring, financial analysis and how much is going to be all about the zoom and the excitement?
The more we think the zoom is going to matter then the more we should be interested in the IPO. For it's likely that the offer price is going to be based upon the boring parts, not that zoom. That's one possible analysis of course, the other is to look at the last luxury car maker to come to market, Aston Martin. Where said excitement was more than built into that initial offering price and so the price has sunk like a stone from that initial offer.
That's a psychological problem that has to be dealt with. Do we think all that excitement of it being Porsche is going to be already in that offer price? Or do we think that being Germanic it won't be and it will be added later?
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The IPO range has now been announced, VW is offering the new Porsche shares at €76.50 to €82.50. The exact price will depend upon the bookbuilding exercise. The revenue raised will then be used by VW to pay for electrification of the other model ranges – in large part that is.
However, there will be a limit on the excitement in the new Porsche shares. There will be no grand takeover bid for example. The Piech-Porsche family is to borrow to up its stake in the newly floated Porsche to 25% plus one share. That's a blocking minority.
So, what Porsche will end up as is an independent and going to remain independent car company. It's possible to think through the valuation by book numbers and so on but that's not, likely at least, what is going to be the determining factor for the price in the early weeks of the independent quotation. Given the impulses of petrolheads it's going to be emotion driving matters, not hard headed finance.
But that still leaves us with this problem. The Tesla (NASDAQ: TSLA) share price was for years driven by fanbois to well above logically valid levels. Aston ran the other way, the glamour of the marque led to – as events have shown us – a gross overvaluation. Which way is this going to run with Porsche?
A reasonable guess is that as the Piech-Porsche family are going to be paying a 7.5% premium to the float price to top up their holding then that float price isn't going to be overvalued. But that is an assumption, not a certainty.
