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(Bloomberg) — When Volkswagen AG spun off Porsche AG in late 2022, the investment network had visions of a collection of supercars that would rival Ferrari. The dream has yet to come true and some investors doubt it ever will be.
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While Ferrari’s shares have risen more than 50% since the start of last year, Porsche has fallen by about a fifth, bringing its market price closer to parity with that of its former parent company — a scream from the hole that was once at €40 billion ($43 billion).
At the same time, Porsche’s price-to-earnings ratio fell to less than a quarter of Ferrari’s, hurt by slowing activity in China – long Porsche’s biggest market – and production problems that have affected the launch of key models, adding the electric edition of its best-selling Macan SUV.
Prospects for 2024 aren’t looking up, either, with Porsche telling analysts last week that sales volumes would likely be flat.
“You thought you were buying into a business that was stable and improving, and it turns out that’s not the case,” said Jefferies analyst Philippe Houchois. “The question is, when do we start upgrading numbers?”
Porsche will pursue “value-based expansion and strong selling point” in 2024, the company said in an emailed response to questions. “We are laying the groundwork for the future and updating four of the six model series. “
Soon after the initial public offering, Porsche’s valuation priced shares at a forward PE-ratio of about 20, resembling that of other luxury brands such as LVMH, yet a fair bit away from Ferrari’s of 40. It was still substantially higher than VW’s PE ratio of below 5.
The stock value and initial surge were driven in part by “VW owners promoting VW and buying Porsche, as well as car investors who had similar good fortune to what they saw with Ferrari,” said Tom Narayan, an analyst at RBC Capital Markets. The crisis that followed had “more to do with Porsche in particular,” he said.
According to Michael Dean, an analyst at Bloomberg Intelligence, investors’ sadness lies mainly in Porsche’s lack of features to deal with the slowdown in China and the magnitude of the execution threat related to the launch of new models.
Unlike Ferrari, whose scarcity business style gives it a depleted order book spanning several years, Porsche is more reliant on macroeconomic forces, with the percentage of profits coming from China falling to 26% in the first part of 2023 from about 26% in the first part of 2023. a third last year.
In addition, internal difficulties at VW’s software unit have led to a two-year delay in the launch of the electric Macan, which is now scheduled for Thursday in Singapore. At the same time, the long-term of electric cars looks less promising, with sales stagnating.
“China is recovering, so going back to China is still an option,” said Daniel Roeska, an automotive analyst at Bernstein. “Porsche is adopting a cyclical inventory that is based on the style cycle; This is the opposite of what you would expect from a luxury company. “
However, this is bad news for Porsche investors. The stock’s drop has allowed it to outperform Ferrari’s over the next 12 months, with the average value target of analysts tracked through Bloomberg showing gains of 31%, compared with around 8% for its Italian rival and 27% for VW.
Deutsche Bank AG this week lowered its price target on Porsche to 100 euros per share, from 120 euros. Still, analyst Tim Rokossa wrote that the company wasn’t getting enough credits to allocate volumes from China to other regions to the stocks, which helped maintain margins.
Investors will be looking for evidence before Porsche can regain initial optimism around its IPO, said Swetha Ramachandran, a fund manager at Artemis Investment Management.
“The market has been hit by a number of unfortunate setbacks and is waiting for assurances on the outlook, inventory in the field of ‘show me’ inventories,” he said.
(Updates with Deutsche Bank’s price target for Porsche in 14th paragraph.)
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