Should You Add Porsche To Your Portfolio?

Buy and Hold, Just Like Them!

I wanted to write about this one as one of my true contrarian plays in what I think it’s a play for a portfolio that many may be missing. I’m skeptical because I am generally bearish in the country as well as the global economy for industry where it is domiciled and operating; but I cannot overlook the low valuations, dividend and brand-recognition around the world it still holds.

PAH3 largest shareholder in Volkswagon

Equity stake of VW: 23B (changing)

Equity stake of Porsche AG: 12.5B

Venture in startups: assuming 0 value (really >100M Euros)

Minus debt: -3.2B

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This puts their current = NAV 32B vs 16B Market Cap (NOW 5B at the time of publish)

Debt seems to be reasonable, still

Don’t get Confused

Here’s where a lot of people may get lost. There are two stocks listed for Porsche as part of a huge network of companies. For Porsche they are $PAH3 and $P911

Porsche SE is already a listed company controlled by the Porsche-Piech family and is Volkswagen’s largest shareholder. Porsche AG is a sports car manufacturer and is part of the Volkswagen Group, and it is its shares that are affected by the IPO of 2022.

Volatility

The current volatility for Porsche Automobil Holding SE (PAH3.DE) is 4.88%, while Porsche AG (P911.DE) has a volatility of 10.21%.

Dividends

PAH3.DE’s dividend yield for the trailing twelve months is around 6.18%, more than P911.DE’s 3.33% yield. It’s also worth mentioning that PAH3 had a steady dividend for 10 years now, even touching over 9% in 2020 and 13% for 9 months end 2024.

Gross Profit

Porsche AG will remain under significant control of both Volkswagen and Porsche SE and it’s free float will include only a fraction of all shares and will offer no voting rights. This will make it difficult for any investor to build a significant stake in the company or push for change.

If we take their diluted shares * share price we're given a 10.976B valuation (currently a 50% discount to current market cap).

So Let’s Look at PAH3

More complicated version–this is from a Simply Wall St article where they encourage the holding company is much better

You can see that there is less equity exposure to Volkswagen if you’re the holding company rather than the AG manufacturer, as well as less Cap/OpEx.

Taken when share prices were even higher!

Volkswagon

The Group’s production network encompasses 119 production sites, 72 of which are vehicle production plants. It also helps that the production plants of these manufacturing companies are international now to hedge some risks.

However, serious concerns about their longevity have hit news headlines recently with the share price absolutely tanking. Volkswagen’s future looks bleak in many ways. The company desperately needs over $4 billion in cuts to stay in business, something that surely would tank the share price (of PAH3 too).

PAH3’s after tax, non controlling shareholder interest in Porche AG had fallen from 3.9B to 2.8B (Euros) and after tax, non controlling interest in Volkswagon AG had also fallen from 11.3B Euro to 7.6B Euro. A call for management intervention to resolve the situation as been made clear.

Problems have been broadcasted after news about the possible closure of several of its factories in Germany. The announcement caused a great shock in the public, considering its long history and size as an employer. Elevated costs, growing competition in the automotive industry, as well as the transformation towards electric vehicles (EVs) (CLICK HERE TO SEE THE TRUTH BEHIND THE SCAM!), which requires large investments, all coupled by an economic slowdown in Europe (with no expected bounce back in bond markets) have all spelled out disaster for Volkswagen. If you’ve been keeping an eye on our site, you’ve realized this is no surprise as I am incredibly bearish on Europe.

As far as I can, the main reason for avoiding $PAH3 is the debt threats posed by Volkswagen.

It’s worth saying too that Porsche Holdings ($PAH3) has new fund investments, deals with Rivian and lithium battery companies (indirectly)

Ratios

EV/Sales: 3.06x

Revenue growth: 15.07%

PEG: 0.06x

Gross margin: 99.52% (Latest quarter)

Number of employees: 46

Major Pullback, Still Profitable

If we look at March, June and September 2024, the holding company is still profitable, posting a healthy net income despite a large drop in revenue/sales.

Balance Sheet (as of September 2024)

We can compare this with the following assets (Sept 2024):

Short Term Assets/Cash: 2.58B (1.14B of it is cash); this is enough to wipe their current liabilities, short term debts and accounts payable.

Current Assets: 2.6B + 3M in Accounts Receivable and 20M in other current assets

Total investments and advances: 62.31B (it has been falling slightly by 100s of millions in the last few quarters).

The value of their investments could fall by 80% and they’d still have 156% more assets than liabilities; NAV currently sits at 177.43 (trading at 35 Euro)

Explanations?

Most European monoholding’s are significant undervalued because investors can easily buy the underlying value itself for more rapid growth. The volume of the underlying stock is higher too, making it appeasing for large funds who require large volume and dividends of the underlying stock may be higher (not in this case).

Additionally, it’s no secret that Germany’s economy is in absolute free fall with matters accelerating towards destruction [this matters since a huge percentage of EU funds and production comes from Germany]. Europe has been in recession for a number of quarters now.

It’s in an industry ripe for value traps too; an Auto Original Equipment Manufacture which also happens to be a family held business that’s trading at a NAV discount (lessons from Ben Graham). This alone may remain too low for too long for your average investor; but the name of the game is to buy things when they are cheap AND hated.

For Fiscal Year 2023, $PAH3 received 226M Euros from $P911, equal to 2.31 Euros per share

I am not shy of saying the economic calamity that Europe is going through neither. Germany is in the rampant stage of deindustrialization and this will surely pull back sales much further. EU regulations and endless policies will not only spook but permanently ensure investors will keep their capital abroad.

I have written about this in these articles if you’re interested:

Catalyst

The main sort of catalyst is if Volkswagon are able to make the appropriate expense cuts to manage their debts and continue to issue the same dividend to their shareholders. For PAH3, this is its greatest concern (taken from their latest financial report):

We’ve established that the holding company is at a discount to it’s value, is not entirely vulnerable to Volkswagen’s woes, is paying a nice dividend, with a long history of stomaching major setbacks before. But, what are some things that will stimulate interest once again?

On The Ball seeks to merge history with politics as an indication of what may happen in the future economy of a region; to put it simply, I think Europe has made some unrepairable mistakes. Due to this, it’s likely that jobs will continue to be slashed, factories closed, dividends cut (yet again) and optics remaining poor for some time.

BUT, the holding company network is well diversified globally at this point, not only by its investments but by the positioning of their auto sales. As it stands now, it is well capitalized with more than enough cash to cover major liabilities and it’s major holding (Volkswagen) is likely going to trim away the €40B on CapEx, R&D and M&A before it touches the €4.5B in dividends (to appease shareholders). This is exactly what we’re seeing:

As long as $PAH3 can still properly allocate it’s capital as it has done for so many years, the play here is that it is to collect it’s own dividend income receives from its VW and Porsche AG holdings [This equates €1.7 billion, or €5.50 per Porsche SE share for 2024. In total (from other investments) after tax, the net income received (in last 9 months) was 2.508B Euros to their portfolio investments and -1M Euro to their core investments]–> and then receive a payout their own dividend from this. While we as shareholders await our distribution, we’re waiting by holding their underpriced shares as the recessionary forces work through their natural cycles.

https://www.porsche-se.com/fileadmin/downloads/investorrelations/mandatorypublications/interimreport-24/2024_PSE_Q32024_E_web_.pdf Please refer to Page 19 for their new investments that have been made

History Repeats?

In December 1930, in the midst of the global financial crisis, the 55-year-old Porsche set up an independent business. On April 25th, 1931, Porsche founded the company “Dr. Ing. h. c. F. Porsche GmbH” in Stuttgart together with his son-inlaw Anton Piëch and Adolf Rosenberger, the latter of whom was to resign again in 1933. The newly established business offered engine and vehicle design and consultancy services, and initially had a staff of 12 people.

If we go back, the dividend has only been completely cut once, in 2015 because of the diesel issues placing the payout ratio at a conservative at 28%.

Is this another opportunity to buy Porsche during a Global Financial Crisis? It’s worth noting that $PAH3 is trading near it’s 2010 and 2020 lows.

Thoughts..?

I think Porsche is one of the better automobile companies that are trading on the markets with an opportunity staring us in the face. Buy a value stock (that may get cheaper) with a great brand name paying a healthy dividend.

There’s the expectation that they deliver a high-standard product and they’ve been trading at a discount for the last couple of years. However, despite this, I believe the debts European companies (Target-2 in collapse), the amazingly anti-business, anti-wealth, anti-freedom policies of the Union and a general drawdown in global markets has created serious caution amongst investors. China’s emergence as a player on the scene has also reduced a slight number of proceeds as well (however, I believe China’s days are numbered over the long-term)

Germany, and for that matter, Europe’s markets continue to display a melt-up boom despite earnings and job numbers underperforming. When this reverses and Volkswagen inevitably lays off thousands of more workers to save themselves, it’s likely $PAH3 falls, too. In other words, despite my opinions on Europe, I have a feeling that this undervalued, dividend payer, with large net income, and a healthy brand attached to it is going to get a lot cheaper if one has the patience to wait. When this bottoms out and people are completely terrified of autos, especially incorporated in Europe, it could be a real opportunity to scoop up shares.

I further believe that amid a market crash, we’re going to receive another injection of Quantatative Easing that will dwarf the money printing of 2020–to sustain the mass murder of corporations. It could be that Porsche or VK face these corporate debt threats and therefore it’s easy to see that the flow of fresh reserves make its way back into these stocks. At such a time, are investors going to be more comfortable with growth after a market correction; or value? In other words, will they be eager to buy the cheap, secure company or the growth case that just received funding?

When it comes to Porsche Holding, you’re getting a lot of the important asset value without the debt baggage and major liabilities that the underlying companies possess. This holding company grants us premium brands, at an undervalued price with a Volks AG stake, minus the holding debt at market value—and 80% of the Porsche AG stake for pennies.

While other stock write ups may be contrarian by industry (silver mining or shipping), I believe this is truly a contrarian pick because of the obvious choice not buying automobiles, especially one with exposure to a troubled balance sheet in Europe. Despite this, I believe the play here is to collect the dividend by holding it at a discount Trouble may be felt in the short to mid-term, but for long-term holdings this is a significant bargain for investors!

#StayOnTheBall