Porsche's Upcoming IPO May Be A Pivotal Moment For European Markets

European markets are primed for the hotly anticipated Porsche initial public offering following news that Volkswagen is targeting a €75bn valuation upon its debut. Landing on the Frankfurt stock exchange on the 29th September, the stock’s flotation is set to be a major test for a continent that’s struggled in the wake of record-breaking inflation and the outbreak of war between Russia and Ukraine. 

With the likes of Goldman Sachs, Bank of America, JP Morgan and other leading financial institutions backing Porsche, the company’s debut is certain to be closely scrutinized throughout Europe for indications of new investor confidence. 

Despite widespread market volatility, Porsche’s push to go public coincides with its parent company, Volkswagen Group’s mounting ambitions to expand into the electric vehicle space. Following on from the successful launch of its ID.4 EV and Porsche Taycan models, an IPO is likely to be an excellent opportunity to secure funding to grow the production of more EVs. 

(Image: Statista)

With Porsche’s revenue almost tripling in the space of 10 years - in spite of the pandemic conditions of 2020 and 2021 - the prospect of a listing for a company earning in excess of EUR 30 billion is likely to be tantalizing for many investors. 

“Porsche’s IPO could be one of the most interesting offerings ever,” said Maxim Manturov, head of investment advice at Freedom Finance Europe. “Unofficial information suggests that Porsche has already attracted the attention of investors and received pre-orders at valuations ranging from €60bn to €85bn. Prominent investors, including T Rowe Price Group Inc and Qatar Investment Authority, have already expressed interest in subscribing to an IPO in this valuation range.

Also, Porsche's latest performance may help the company achieve such a high score, as the company is one of Volkswagen's most important brands. In 2021, the company delivered 301,915,000 vehicles to the market compared to 272,162,000 a year earlier, and Porsche is also very popular in America, Europe and in one of its largest markets, China. The company posted revenues of €30.289 billion (up 16.1% YoY) with an operating profit of €5 billion (a 16.5% ROI).” Manturov added.

Porsche's move to go public shares some similarities with Ferrari’s market debut as a subsidiary of Fiat Chrysler, which earned the company significant levels of investment. Given that Porsche is a wildly popular name in the world of motoring, and that the company has posted consistently strong margins, the move to undergo an initial public offering makes sense. 

As we can see from the years that followed Ferrari’s listing, the subsequent stock performance of Porsche in the wake of a listing may also be an appetizing prospect for the company and investors alike. 

Putting a Price on Porsche

Significantly, some valuations have priced Porsche at as much as €75bn billion - which could potentially make the manufacturer’s listing one of the biggest ever IPOs from a German company - with the debut set to generate between €8.7bn to €9.4bn. Volkswagen intends to pay out 49% of the proceeds to shareholders via a specially crafted dividend strategy whilst investing the rest in its own business model. 

Interestingly, such a valuation would give Porsche more than twice the market cap of Ferrari - which may go some way to signifying the potential of both Porsche AG and Volkswagen’s intentions for eco-friendly vehicles. 

Porsche was responsible for generating $5.5 billion of Volkswagen’s $21 billion operating profit in 2021, despite making up just 2.5% of all deliveries. Furthermore, Volkswagen’s shares have struggled in recent months - falling 36% over the past year. This has left the company with a market cap of EUR 95 billion at the time of writing - less than Porsche’s expected valuation. 

This means that there’s a strong argument forming for VW’s brand portfolio to operate as individual entities. 

The value of Porsche and the company’s growth prospects have been bolstered by ‘Porsche Strategy 2030’, which emphasizes the manufacturer’s ambitions towards developing EVs in the future, and also hints at the development of autonomous vehicles. As major economies throughout Europe and the rest of the world look to shift to predominantly electric vehicle usage over the coming years, Porsche has already become a leading prestige manufacturer of EVs, with 25% of the cars the company sold last year being electric. 

Of course, such a significant transition needs to be managed well in order for Porsche to maintain its prestigious reputation and admirable profit margins throughout. 

Geopolitical Tensions Cast Doubt

Despite much optimism surrounding the prospects of a Porsche IPO, recent geopolitical events in Eastern Europe are threatening to impact the hotly-anticipated listing. 

The company warned that the timing of the IPO could be interrupted should Russia’s war in Ukraine continue over a longer time frame. 

"We cannot rule out, if the conflict lasts a longer time, that this could have potential implications on the listing," said Johannes Lattwein, CFO at Porsche, at a news conference in March. While the listing is now set to take place on September 29th, Germany’s economic circumstances have been significantly impacted by geopolitical events, and Porsche’s performance is likely to be affected by the nation’s ongoing fuel crisis. 

Despite this, should Porsche’s IPO draw in the expected €75bn valuation that parent company Volkswagen is seeking, it could represent a major boost for European markets as a whole. Furthermore, Porsche’s commitment to developing more sustainable vehicles in the future can help to galvanize ESG stocks throughout the continent at a time when many industries are reeling from the fallout of Russia’s conflict in Eastern Europe.