Tag Archives: TCI

Update: Porsche SE Holding (ISIN DE000PAH0038)

In June 2011 and July 2011, I looked at Porsche Holding SE.

To summarize the German language posts in a few points:

– Porsche is basically a holding company for 32% of Volkswagen at a discount
– they do not have any operational business left
– at that point in time (end of June 2011), the then prevailing calculated discount of ~33% wasn’t that exciting, considering the legal risks, corporate governance etc.

So what happened in the meantime ?

Volkswagen “cleaned” up the structure to a certain extent that the rest of the operating business was transferred to Volkswagen against 4.5 bn cash (and one share for tax reasons).

Then, a few days ago, Chris Hohn from TCI presented Porsche as one of his best ideas. As Chris Hohn in my opinion is one of the few guys one should really pay attention to, let’s look quickly at his main arguments (via Marketfolly):

Long Porsche

– Concerns about the impact of the litigation surrounding Porsche’s Volkswagen (VW) short in 2008 have depressed the price
– Hohn thinks the market has overreacted and Porsche will settle for less than is expected
– Porsche trades at a 40% discount to NAV
– It’s stock has traded sideways for many years
– Porsche owns 32% of VW
– VW is also cheap so there is a double discount
– VW is perceived as a budget brand but a substantial amount of its earnings come from the premium market where there is more pricing power: Audi and Porsche
– VW and Porsche have good emerging market exposure
– VW grew its volume even during the financial crisis
– It is steadily destroying other European carmakers

Hohn believes there’s 4 big ways to win by investing in Porsche:

1. VW appreciates
2. The discount to NAV narrows as the litigation is resolved
3. The discount narrows due to a higher dividend
4. A merger of Porsche and VW

Personally, I don’t buy the argument of Volkswagen as undervalued. For me, Volkswagen is much more like an accident waiting to happen, but anyway, based on his analysis, the discount is now 40%. According to his latest report, he seems to be short Fiat, so maybe he has set this up as a kind of “pair trade”.

However, let’s try to verify the discount first, starting with the last available half-year accounts:

At Equity Part 29.8 VOW + Porsche Holding
other receivables etc 4.1  
short-term assets 0.3  
Cash 0.5  
Total assets 34.7  
Hybrid debt 0.3  
Financial debt 5.9  
Other liabilities 6.7 Option VW
Net Assets 21.8  
Per share 71.2  
Market Price 54  
P/B 0.76  
“Discount” 24.1%

Now we can transform this into a “market value” balance sheet including the reported transaction:

At Equity Part 22.8 VOW at market
other receivables etc 4.1  
short term assets 0.3  
Cash 3 +4.5 minus 2 debt
Total assets 30.2  
Hybrid debt 0  
other liabilities 3.9  
Other liabilities 0 Option exercised
Plc loan 0.3 Formerly cons.
Net Assets 26.0  
Per share 85.0  
Market Price 54.0  
P/B 0.64  
“Discount” 36.4%

So we end up with a discount of ~36% based on a share price of EUR 54.

In my opinion, a 36% discount is nice but not a screaming buy for the following reasons:

– without a clear catalyst, a holding Co. will always trade at a certain discount. Even transparent Holdings like GBL trade at something like 15-20% discount
– additionally, the traded Porsche shares are non-voting pref shares, so an additional discount might be applied here
– the discoutn does also have to take into account potential litigation payments

So without a clear catalyst, I don’t think Porsche is a “must” buy but rather “fairly” valued. So let’s look at Chris Hohn’s catalysts:

1. VW appreciates
2. The discount to NAV narrows as the litigation is resolved
3. The discount narrows due to a higher dividend
4. A merger of Porsche and VW

I have to admit, I don’t buy any of these.

1. With regard to Volkswagen, I have to admit that I find it really hard to understand how much they are actually earn. Both with the MAN and Porsche acquisition, they booked so many special effects that the balance sheet is more or less incomprehensible. Alone the treatment of the “Porsche option” would be worth 2 extra posts and reminds me of a certain US energy company now bankrupt…

2. Ok, if they pay nothing, than the discount might shrink a little bit, but personally I think a 25% discount on NAV might be justified in any case

3. Unlikely. Volkswagen just revealed a 50 bn investment program over 3 years

4. Nope. Just as a reminder: Volkswagen for unknown reasons keeps their subsidiary Audi AG listed since many many years despite they could legally squeeze out any time. I do not see the big advantage of a merger.


I still don’t think that Porsche is such a great investment. There might be a certain upside if the litigation ends quickly and without large payments. If one believes in Volkswagen as a great investment, it might be interesting as well.

However on a relative basis I don’t think that there is a lot of upside in the Porsche shares, as I don’t see a quick “real” catalyst and a certain structural discount (20-30%) is justified due to holding structure and non-voting status of the traded shares.