With a 10% dividend yield, premium brands, and management tackling inefficiencies, VW offers one of the biggest price-to-value gaps in the market. Through PAH3, the opportunity is even more compelling.
I’m invested in Porsche Se myself since I love the multiple layers of potential revenue creation, especially the leverage on the holding level.
Two things I would add:
1. You should definitely take a closer look on the History of Porsche and Volkswagen as company’s combined. First of its super interesting with the fight for Power, both companies trying to take over each other and a squeeze out with for a super short Periode of time even made Volkswagen the most valuable company of the World.
In the end you have the Family Porsche / Piëch controlling Porsche through Volkswagen as a result of the failed takeover of Volkswagen. They see themselves as the inherit of Freddy Porsche and their ultimate goal is to take back control of Porsche (independently). The first step of this was the IPO of Porsche in 2022 to establish a stand alone presence on the stock market. I see a good chance that in the future there is some kind of deal that trades most or some of there Volkswagen shares for a more Porsche shares or even a total separation of the two companies. They care way more about Porsche than Volkswagen. Also a break up of the complex structure would create Value for all Parties.
2. I think you shouldn’t underestimate the political component in this case. Lower Saxony is highly dependent on Volkswagen, a lot of jobs at Volkswagen and the surrounding Company’s depend on Volkswagen. After Elections one of the exit pole questions even is: „Which Party trust the most to lead Volkswagen successfully ?”. The political implications of closing a plant in Germany itself, which never happened before are huge. Politically this steps would only be possible if there’s some kind of dividend cut, at leaset for some time.
"Fortunately, VW is a consistent dividend grower, currently maintaining a moderate payout ratio of 28%.”
This is where I see the problem. You acknowledge at the start of the paper that accounting profits are vastly overstated yet you are using them as the basis of your moderate payout ratio. In reality, the actual free cash for VW was -8.675b in 2023 and just 3,042b in 2022 (significantly higher than the dividends paid out). VW will have to cut its distribution if they want to compete long term.
They spend €40 billion on CapEx, R&D and M&A. There're a lot of expenses to cut before you go after the €4.5 billion dividend. They don't have much of an incentive to drastically cut the expenses just to report prettier FCF, but they do have an incentive to not anger shareholders and the capital markets by cutting the dividend.
Not saying the dividend can't be cut, but it has only happened once in the last 20 years, when the diesel issue first came up in 2015 and it was completely unknowable what the consequences of that event would be. Even during the GFC, the dividend was only slightly reduced.
However, there's a concern about the optics of the dividend, If jobs get cut and plants get closed in Germany. It would be hard to justify paying a hefty dividend to shareholders in that case.
Great write up. thanks!
Thanks, I appreciate the comment.
Great write up,
I’m invested in Porsche Se myself since I love the multiple layers of potential revenue creation, especially the leverage on the holding level.
Two things I would add:
1. You should definitely take a closer look on the History of Porsche and Volkswagen as company’s combined. First of its super interesting with the fight for Power, both companies trying to take over each other and a squeeze out with for a super short Periode of time even made Volkswagen the most valuable company of the World.
In the end you have the Family Porsche / Piëch controlling Porsche through Volkswagen as a result of the failed takeover of Volkswagen. They see themselves as the inherit of Freddy Porsche and their ultimate goal is to take back control of Porsche (independently). The first step of this was the IPO of Porsche in 2022 to establish a stand alone presence on the stock market. I see a good chance that in the future there is some kind of deal that trades most or some of there Volkswagen shares for a more Porsche shares or even a total separation of the two companies. They care way more about Porsche than Volkswagen. Also a break up of the complex structure would create Value for all Parties.
2. I think you shouldn’t underestimate the political component in this case. Lower Saxony is highly dependent on Volkswagen, a lot of jobs at Volkswagen and the surrounding Company’s depend on Volkswagen. After Elections one of the exit pole questions even is: „Which Party trust the most to lead Volkswagen successfully ?”. The political implications of closing a plant in Germany itself, which never happened before are huge. Politically this steps would only be possible if there’s some kind of dividend cut, at leaset for some time.
"Fortunately, VW is a consistent dividend grower, currently maintaining a moderate payout ratio of 28%.”
This is where I see the problem. You acknowledge at the start of the paper that accounting profits are vastly overstated yet you are using them as the basis of your moderate payout ratio. In reality, the actual free cash for VW was -8.675b in 2023 and just 3,042b in 2022 (significantly higher than the dividends paid out). VW will have to cut its distribution if they want to compete long term.
They spend €40 billion on CapEx, R&D and M&A. There're a lot of expenses to cut before you go after the €4.5 billion dividend. They don't have much of an incentive to drastically cut the expenses just to report prettier FCF, but they do have an incentive to not anger shareholders and the capital markets by cutting the dividend.
Not saying the dividend can't be cut, but it has only happened once in the last 20 years, when the diesel issue first came up in 2015 and it was completely unknowable what the consequences of that event would be. Even during the GFC, the dividend was only slightly reduced.
However, there's a concern about the optics of the dividend, If jobs get cut and plants get closed in Germany. It would be hard to justify paying a hefty dividend to shareholders in that case.