Financial Analysis | Porsche AG

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

In previous articles, I have written on the Porsche IPO to shed light on the process and briefly presented the company facts and figures (in Turkish). Then, recently I have examined the share price developments, return performance and descriptive statistics of the stock since the IPO at my Stock Analysis Porsche AG post. Results from that study indicate that the share price is currently at the historical bottom and shares are trading almost two standard deviations below its mean price. Although this can be interpreted as a sign of good time to buy, we need to understand the ground for that drop. Therefore in this article, I will delve into details of the latest financial statements and company guidance for future.

But let’s have a quick look at the company history, business segments and shareholder structure first.

Porsche is one of the most valuable luxury brands in the world. “The history of the Porsche automobile brand began in 1948 with the Type 356, but the groundwork for the company was laid in the design office of Professor Ferdinand Porsche.” In this regard, year 2023 marked the 75^th anniversary of Porsche Sports Car and 60 years of the legendary 911.

According to Oliver Blume, Chairman of the Executive Board, Porsche is the perfect combination of iconic legacy and sporty, state-of-the-art luxury. To keep this notion intact, there are continuous innovations and hard work in the house. Electrification ambition, sustainability, digitalisation and financial challenges of transformation are among the top lines of company’s agenda.

The Porsche AG Group consists of the automotive and financial services segments. Automotive segment covers the vehicle business as well as the other business fields services and design. As I presented above, Porsche reports its deliveries under six models and we will compare quarter on quarter (QoQ) and year on year (YoY) changes on these figures later on. The activities of the financial services segment include the leasing business, dealer and customer financing, service and insurance brokerage business as well as mobility services for vehicles.

Porsche AG’s subscribed capital comprises a total of 911 million shares, which the half of it is unlisted ordinary shares and the other half is listed non-voting preference shares. Each of those representing a notional interest in the share capital of 1 euro. When it comes to shareholder composition; Volkswagen AG holds 75.4% of the company shares indirectly via Porsche Holding Stuttgart GmbH, and Porsche Automobile Holding SE directly holds 12.5% of shares. The majority of preferred shares are held indirectly by Volkswagen AG and additional preferred shares are distributed among institutional and private investors, which makes the 12.1% rest.

EXECUTIVE SUMMARY

Macroeconomic outlook is challenging and global demand downturn hits cyclical companies considerably more. Difficulties in the automotive business and extensive renewal of the product portfolio reflected as declines in both sales revenue and operating profit in the third quarter of 2024, but the Porsche Group is still on track for its goals.

In the first nine months of this year compared to previous year’s same period, sales revenue decreased from €30,132 million to €28,564 million, and gross profit decreased from €8,589 million to €7,285 million. Therefore YoY declines are 5.2% and 15.2% respectively. The operating profit fell from €5,501 million to €4,035 million and this makes a drastic 26.6% decline in the cumulative sum. The return on sales (RoS) tumbled to 14.1%, which was 18.3% last year. RoS is one of the key performance indicators and based on “Road to 20 Strategy”, Porsche is aiming for a Group operating RoS of more than 20 per cent in the long term. In this regard, the fall in share price might have its own reasons.

Net income, which is referred as profit after tax in company financials is recorded as €2,764 million after non-controlling interest adjustment, and this represent a €1,176 million decrease from previous reporting period. In percentage terms, decline is almost 30%. I have also added last twelve month (LTM) figures comparison for the changes in key items. All indicators, both in QoQ and YoY terms, justify the decline in the share price up to a point. Revenues and profitability decline, but there is a recovery on quarterly data and I also think that year-end figures might improve if the economy takes a tailwind.

Earnings per ordinary share retreated to €3.03 from prior year’s €4.32, and earnings per preferred shares stood at €3.04 (prior year’s figure was €4.33). On June 12, a sum of €2,100 million as dividends distributed and the equivalent of it is €2.30 per ordinary share and €2.31 per preferred share. Although you can follow margins for gross profit, operating profit and net income on the table below, we will visit those also later on with another chart.

1 – Regions and Models

Porsche AG reports its deliveries both for regions and models. At the end of third quarter, Porsche AG delivered 226,026 vehicles. Compared to same period of 2023, this represents a 6.9% decrease from the 242,722 vehicles delivered.

In hometown Germany the Group managed to increase its sales 8.2%, from 24,814 to 26,838 vehicles. This figure represent the 12% of all deliveries in the first nine months. Europe (excluding Germany) also improved 1.4% and 52,465 vehicles delivered in this region. On the other hand North America and China could not contribute with positive numbers. On the announcement, reasons for that were: “Limited product availability due to this year’s model change, ongoing tense economic situation in China”. These two regions make almost the half of vehicle deliveries with 46%.

In the table below I have presented both quarterly and cumulative figures for five regions. On quarter on quarter developments Germany looks the worst market with 36.8% decline and Europe follows it with 25.4% drop on deliveries. Only on the third quarter of this year, a total of 70,081 vehicles delivered and compared to previous quarter, decrease is 10.5% and compared to third quarter of 2023 the decline is 7.0%.

When it comes to model categories, I have already presented a chart above for six different models delivery performance. In cumulative figures, Porsche Cayenne recorded the highest number of deliveries with 77,686 units. This is roughly 35% of 226,026 total deliveries and 20.5% more than the same period of year 2023. On second spot Porsche Macan stands with 55,000 deliveries and decrease is 19.5% compared to 2023q3. Panamera and Taycan also declined drastically in cumulative terms due to change in market situation in China and the current model change. You can also find below quarterly and cumulative figures as well as percentage changes.

2 – Income Statement

At the end of first quarter, the Porsche AG sold 221,304 vehicles, which is 11.5% less than prior year’s sales of 250,192 vehicles. At this point, a note of caution is apt. Sales and deliveries should not be mixed with each other. The performance indicator “deliveries” reflects the number of vehicles handed over to end customers. The Group generated a sales revenue of €28,564 million and cost of sales is €21,279 million. Based on these numbers, gross profit decreased 15.2% from €8,589 million to €7,285 million.

Porsche spent €3,516 for distribution and administrative expenses in cumulative terms, and below I have presented a chart since the IPO for these items. As we can see, operating expenses have a stable outlook, with minor changes. There is also an extra item in the chart and it is research and development expenses. Porsche spent €2,312 million on R&D in the first nine months and I have depicted the values as a percentage of sales on the right axis.

In the beginning of this article, I have presented the detailed calculations and now its time to check profitability of the company closely. Let’s have a look at the margins in terms of last twelve month data. Gross margin of the Porsche AG stands around 30% and recent economic downturn pushes all the margins to a lower plateau. Operating profits decrease since last year and current operating margin is at 14.93%. Return on Sales is an important indicator for the company and in the future there is a path for 500 basis points improvement. Net income margin also follows a similar trend and by the latest data it is at 10.21%.

Breakdown of Income Statement

At this point, I will focus on the Income Statement and break it down to main components. So we will see where does this €28,564 million revenue comes from and how does it end with €2,764 million profit after tax. Porsche AG relies heavily on automotive segment. I have prepared a Sankey Diagram and it shows the total Revenue at the end of third quarter 2024 on the left hand side. Then I’ve deducted Cost of Sales €21,279 million TRY and obtained €7,285 Gross Profit. Operating Expenses are also adjusted with net other operating results. Operating Profit at the end of third quarter is €4,035 million and after adjusting it for Financial Results, Porsche AG ends with €3,986 million income before tax. From this sum, €1,221 million tax paid and Net Income for the period is €2,765 million. Finally, profit attributable to equity holders of the parent is €2,764 million.

3 – Financial Risk Ratios

Below you can find the financial risk ratios for Porsche AG since its IPO. Almost all ratios are stable for the observation period. Current Ratio fluctuated safely from 1.00 to 1.50 and currently it is at 1.41 level. Quick Ratio follows a close pattern to it and stands at 0.92 at the end of third quarter of year 2024. Financial Leverage is in slight decline from the beginning and it is at 0.57 level. When it comes to Debt-to-Equity Ratio, it is 1.33 and this is also not that volatile. From the IPO time there is a decrease in this item. All these ratios indicate relatively a sound company, based on the given figures.

Conclusion

Porsche is one of the companies that I respect to its ideas, innovation and products. Therefore I have followed its IPO process closely and reported the developments here in this blog. Needless to say I have applied for the IPO and carried my shares until the reversal signals. Around €110.00 mada profit realisation and I still have one third of whole sum in my portfolio. Based on financials and given market opportunities I also make additions from time to time.

As being transparent and objective, I have presented the financial results of the Porsche AG above with all the details. Based on five regions and six models, I have compared the operating results quarterly, cumulative and in trailing periods. Due to macroeconomic headwinds, recession fears, decrease in global demand and situation in China the company has exposed to declines in revenues and profitability in the past few quarters. Adding to these disruptive effects, there are also a transformation, extensive renewal of product portfolio and considerable investments.

Despite this challenging situation and headwinds, the Porsche AG Group has confirmed the outlook, which was published in the half-year financial report 2024, provided that the overall situation does not deteriorate significantly. I agree with these forward-looking statements with a note of precaution and consider that the market has already priced the declines in the financials. If the economic outlook gets better and recovery felt in global markets these levels might stay as low points. But on the other hand, if the situation gets worse or recovery takes a long time than expected, then the story changes, too. Therefore it is again a question of risk and return preferences and asset allocation optimisation.

The tables, charts and analysis that I have presented here are based on the official financial statements of Porsche AG, and 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.

You can also read my previous works by clicking the links.

ŞİŞECAM 2024/q2
ŞİŞECAM 2023/q3

I wish you all the best.

Ergun UNUTMAZ, 02.11.2024

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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