DCF Valuation | Porsche AG

Dr. Ing. h.c. F. Porsche Aktiengesellschaft | 2024 Q3

I have previously reported the price and return performance of the Porsche AG with descriptive statistics since its IPO. In this vein, Stock Analysis article was solely questioned where the current price stands and how was the comparative performance of the P911 against the DAX Index. Following that, I have also examined why the price went into a nose dive, and tried to reveal grounds for that through 2024/q3 financial statements. Therefore, Financial Analysis article approached the subject from fundamental perspective.

And now its time to complement the structure with the most essential component, which is Discounted Cash Flow (DCF) Analysis. I will adhere to Professor Aswath Damodaran’s methodology and present the outputs in the book template, rather than excel sheet. You will find all my assumptions there and I will explain those briefly. I must also highlight the introduction sentence that I have quoted from Mr. Meschke at this point. Because it is a part of forward guidance and shed lights on the expectations. I don’t know how the next quarter will be, but it is absolutely true that each section of a track might be different and those sections require different preparations, management and evaluation.

So let’s have a look at the DCF Analysis as the final pillar of my investment decision process.

Key Valuation Metrics

In the first chart below, I have plotted the cumulative operating profit data for Porsche AG in columns. The most recent figure is €4,035 million for the first nine month of the year 2024. I have also added the year-end values for previous years. There is a pattern and as Mr Meschke emphasised, this year Porsche is slower than earlier. Challenging macroeconomic environment, geopolitic tensions and the situation in China all contributed to weaker performance in various degrees. In addition to that, this year Porsche renews its product portfolio extensively, trying to manage supply shortages and high costs. Porsche AG has also signed a partnership agreement on October 9, 2024 to secure future supplies and these reflect on the financials drastically.

In the same chart, I have also plotted the cumulative operating profit margins for each quarter in blue line. The highest figure was 19.42% and the most recent is 14.13%. The developments that I mentioned above is more visible in the declining margins. Although it is good to see the data in this form, for the valuation purposes, I have utilised trailing twelve month periods data to iron out spikes and avoid volatility.

The next chart is also important to comprehend how efficiently Porsche AG uses its capital and how much return does the company generate on its investments. Return on Equity (RoE) for Porsche AG in the 2024/q3 is 18.04% with the last twelve month calculation. This is also way below 30.09% peak and last years figure. Return on Invested Capital (ROIC) is also declining for a while and with the latest financials it is 10.73%, again LTM. For both charts, I have also added trend lines to have a glimpse on the pattern.

Following that, let’s have a closer look at the basic earnings per share data and stock price in the market. Porsche AG shares made a peak at €120.35 following the IPO, and this was a lucrative period, considering the opening price of €82.50 on October 03, 2022. This period was also supported with the high margins, RoE and ROIC. On the other hand, current situation is a little dim on all grounds, but still promising. On the next chart, I have presented the daily closing share price (black) and basic EPS (red) data since the IPO. It is not surprising that prices fell so drastically, as EPS retreated sharply. And I have considered all these factors and more in my narrative and DCF valuation.

Finally, I have examined the Price Earning (PE) ratio of the Porsche AG since its IPO. Blue line on the below chart shows the PE ratio on the left axis and on November 6, it was at 15.89. Considering that it touched 22 three times and retreated from there to 13, one can conclude that it was probably the bottom. Relative valuation is not the subject of this article, so I will pass with this quick check. But I would like to point out the recent spread for those who want to further study.

DCF Valuation 2024/q3

Discounted Cash Flows Analysis & Intrinsic Value

Porsche is one of the most valuable luxury brands in the world and in 2023, Porsche AG has celebrated its 75^th anniversary and 60 years of the 911. The company has a long tradition and it has a strong, global fan circle. Passion, enthusiasm and a pioneering spirit aimed at driving innovation are among the core values of the company and it is difficult to convert such values to numbers. However, profit margins and revenue growth represent those very well in a manner. Therefore, I did not add any bonus or risk premiums other than concrete facts. My narrative is based on iconic legacy, exclusive sport cars and luxury car segment themes.

Below you can find the assumptions, current figures and output of my valuation that reflects the Porsche AG’s 2024/q3 financials.

Porsche AG has a 2.00% compound annual growth in its revenues and due to recent downturn, I have started with a 1.50% revenue growth rate. I assumed a move to mean and alignment to economy’s growth at 2.00% for the long run. When it comes to pre-tax operating margin, I accepted this years figure as an outlier at the negative side, compared to previous performance, and started with 14.93%. The company’s margin is solid around 18%. Besides, the company’s “Road to 20” strategy indicates a 20.00% Return on Sales in the long term. Nevertheless, I approached it with a little precaution and I’m happy with my 18.00% scenario. The other variables and shifts are given above. For the risk sphere, I have taken 10 year government bonds in Germany at the valuation day (on November 01, 2024) as 2.414%.

The closing price for the Porsche AG stocks was €65.00 per share on November 01, 2024. The intrinsic value that I have calculated is €96.18 per share. According to my assumptions and expectations Porsche AG stocks is 32.42% undervalued, which also indicates a 47.96% upside potential.

Considering all these analysis and having the risk of my own, I have made additional purchases to my long-term portfolio. But I’d like to remind that all calculations might be prone to error and even if they are perfect, markets have their own dynamics. Even if you find such opportunities, value-price gap may widen before it converges. So please read the “Disclaimer” and act on your own risk. As you would guess, elections on USA brought a crash in German automotive sector in the aftermath. Eventually, I did just buy more shares, but this kind of acts are not light or risk free.

Last but not least, I have also checked the Bloomberg terminal on November 6, 2024 (well after I have concluded my DCF Analysis and to digest the election shock). I have presented the forecasts of 24 distinguished investment banks and institutions below. Range is wide from €63.90 to €110.00 per share value and various upside potentials. My intrinsic value forecast of €96.18 per share value stands at the upper side of the analysts’ twelve month target prices. This estimates are dated in terminal from 25.07.2024 to 06.11.2024, and most of those are recent.

The tables, charts and analysis that I have presented here are based on the official financial statements of Porsche AG. In order to avoid mistakes you can find detailed explanations, news and financial statements from the official website. For further documents and news please check Porsche AG Investor Relations use their official figures to avoid unintended errors or miscalculations. I do not provide any financial recommendations and please also do read the disclaimer. I hope this figures, analysis and calculations are also useful for you, too.

With this opportunity, I’d like to thank to Porsche AG management and all employees for their efforts and performances.
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You can also read my previous works by clicking the links.

Porsche IPO
ŞİŞECAM 2024/q2
ŞİŞECAM 2022/q2 with Prof. Aswath Damodaran’s comments

I wish you all the best.

Ergun UNUTMAZ, 07.11.2024

Disclaimer

General information and statistics that are provided herein this article acquired from official sites and public resources. Thoughts and comments belong to the author and do not represent any other third parties’, public/private institutions’ or organisations’ point of view.

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