In The Luxury Car Race We Are Betting On Porsche

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Luxury automakers like Ferrari and Porsche offer attractive financial performance due to consumers' willingness to pay high markups for prestige.Ferrari has delivered over 600% returns to investors ...

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href=https://seekingalpha.com/article/4683828-in-the-luxury-car-race-we-are-betting-on-porsche><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Luxury automakers like Ferrari and Porsche offer attractive financial performance due to consumers' willingness to pay high markups for prestige.Ferrari has delivered over 600% returns to investors ...</p>\n\n<a href=\"https://seekingalpha.com/article/4683828-in-the-luxury-car-race-we-are-betting-on-porsche\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LU2756315318.SGD","symbol_name":"ALLIANZ INCOME AND GROWTH \"AMG\" (SGDHDG) INC 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H2-SGD"},"translate_title":"在豪华车竞赛中，我们押注保时捷","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"VWAGY":1,"JETS":1,"HESAY":1,"F":1,"DRPRY":1,"BMWYY":1,"LVMHF":1,"MBGYY":1,"POAHF":1,"PPRUY":1,"RACE":1,"TSLA":1},"content_text":"Luxury automakers like Ferrari and Porsche offer attractive financial performance due to consumers' willingness to pay high markups for prestige.Ferrari has delivered over 600% returns to investors since its IPO in 2015, while Porsche's performance has been lackluster.Porsche has a more reasonable valuation compared to Ferrari and offers a margin of safety for investors. peepo There are many reasons why the automotive industry is not a particularly attractive one. It is capital intensive, sales are very sensitive to the state of the economy, which results in high cyclicality, and most participants tend to have basically no competitive moats. Just like airlines (JETS), the automobile manufacturer sector has seen more than its fair share of bankruptcies, given the dangerous combination of high debt loads with cyclical revenue. The only two U.S. auto manufacturers we can think of that have not gone bankrupt are Tesla (TSLA) and Ford (F). The one exception we see is high-end brands, where consumers are willing to pay a premium for the prestige they offer. Similar to how luxury clothes and accessories companies like Louis Vuitton (OTCPK:LVMHF), Hermès (OTCPK:HESAY), and Kering (OTCPK:PPRUY) have delivered superior financial performance, luxury automakers are also able to deliver more attractive financials to investors. Wealthy consumers are willing to pay very high markups for the design, quality, performance, and cachet these brands offer. This is true to some extent for Tesla, BMW (OTCPK:BMWYY), and Mercedes-Benz (OTCPK:MBGYY), but much more so for Ferrari NV (RACE) and Porsche AG (OTCPK:DRPRY). Both these companies are considered among the ten most valuable luxury brands in the world. Porsche AG Investor Presentation Ferrari has been trading for longer, having had its IPO in 2015, and has delivered over 600% returns to investors. Porsche AG became public in 2022, and its performance has been lackluster. Still, things could be different going forward, even though Ferrari still has the advantage of a more affluent customer base on average. Data by YCharts Financials Their brand value is reflected in vastly superior gross profit margins, with Ferrari close to 50%, and Porsche at close to 30%. Tesla, BMW, and Mercedes are all currently delivering gross profit margins below 20%. Data by YCharts Both Ferrari and Porsche saw significant benefits from increased pricing and beneficial mix in 2023, while volumes were up only slightly. For example, as can be seen in the slide below, while Ferrari shipped only 3.3% more cars compared to the previous year, revenues were up more than 17%, and adjusted diluted EPS were up more than 35%. Ferrari Investor Presentation Porsche saw a more modest revenue increase, in large part due to headwinds in China, one of its most important markets. Still, the company managed to deliver some growth and its profit margins remained at enviable levels. Porsche has also been successfully increasing the percentage of sales from battery-electric vehicles. Porsche AG Investor Presentation Innovation & New Launches Porsche is refreshing its portfolio with several important launches in 2024, include a new 911 model, which will be a sporty high-performance hybrid. One area where we see Porsche outperforming Ferrari is in the transition to electric vehicles. Porsche AG Investor Presentation Balance Sheet Porsche AG has a very solid balance sheet with relatively low leverage. We think it can easily survive a recession, and it can also afford to reinvest in the business and return capital to shareholders. Data by YCharts Valuations Close competitor Ferrari offers a minuscule forward dividend yield of ~0.6%, while Porsche's forward dividend yield is significantly more attractive at ~2.4%. BMW and Mercedes offer higher dividends, but we believe they are in a different class, as their gross profit margins showed. We will therefore focus more on Ferrari as the most relevant peer. Ferrari is trading at much higher valuation multiples. For example, Porsche AG is trading with a roughly 17x forward Price/Earnings multiple, while Ferrari is trading at a valuation multiple about three times higher. While we agree with the market that Ferrari deserves to trade at a higher valuation given its higher growth and margins, we believe the difference to be excessive.   Seeking Alpha Based on our earnings estimates for both companies we calculated a net present value of $12.27 for DRPRY and $185.50 for RACE. We therefore see Porsche AG as roughly 20% undervalued, while RACE appears to be significantly overvalued right now.          EPS DRPRY Discounted @ 10% EPS RACE Discounted @ 10%   FY 24E 0.59 0.54 8.35 7.59   FY 25E 0.69 0.57 9.29 7.68   FY 26E 0.75 0.57 10.34 7.77   FY 27E 0.82 0.56 11.48 7.84   FY 28E 0.89 0.55 12.74 7.91   FY 29E 0.97 0.55 14.14 7.98   FY 30E 1.06 0.54 15.70 8.05   FY 31E 1.16 0.54 17.42 8.13   FY 32E 1.26 0.53 19.34 8.20   FY 33E 1.37 0.53 21.47 8.28   FY 34E 1.50 0.53 23.83 8.35               Terminal Value @ 3% terminal growth 19.64 6.26 306.68 97.72               NPV   $12.27   $185.50   Click to enlarge Risks With Ferrari, we see two important risks, one is that it appears behind competitors like Porsche in the move towards electrification, with its first fully electric vehicle not expected to be available until the final quarter of 2025. The other risk is the extremely high valuation at which it currently trades. In Porsche's AG case we see different risks, one being its customer mix, which includes some upper middle class customers that tend to be more economically sensitive compared to Ferrari's super rich clientele. Porsche is also highly dependent on the Chinese market, which has been particularly weak and challenging recently. The company is mitigating this risk by adjusting production to balance demand and supply, and avoiding having to resort to deep discounts. Another risk with Porsche AG is that the company is controlled by its largest shareholder, Volkswagen AG (OTCPK:VWAGY), which itself is controlled by Porsche Automobil Holding SE (OTCPK:POAHF). Porsche SE is itself controlled by the Porsche-Piëch family. The risk is that their interests might not always be aligned with that of minority shareholders, although there is benefit in Volkswagen and Porsche working on joint initiatives and collaborating in R&D and other innovation efforts. Conclusion While Ferrari has the most impressive financials of any automotive company we have ever analyzed, we find its valuation excessive. Meanwhile Porsche AG also offers the benefits of an ultra-premium brand, resulting in above average gross profit margins, at a much more reasonable valuation. There are important risks to consider with both companies, but we prefer Porsche AG given the margin of safety its current valuation offers.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. 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