Sports car manufacturer Porsche, an iconic brand for the vast majority of car fans, listed its shares on the stock exchange in September 2022. Since then, they have risen rapidly to the level of 120 euros. But during the second half of 2023, they surprisingly lost all their gains. Does it make sense to consider buying them?
Porsche cars are in constant demand, with iconic models like the 911 waiting times long and some models almost sold out. And this despite the record production of the 911 model.
In 2023, the automaker proceeded with a fundamental modernization of the model range and presented the new Panamera, referred to as the third generation. At the same time, the Cayenne also underwent a significant facelift. The change brought an eight-cylinder engine, more powerful plug-in hybrids with an electric range of up to 100 kilometers, and a more pronounced look at the interior of the model.
In 2024, Porsche will launch the new Macan in an electric version, and it looks like its parameters will be really impressive. At the end of the year, the new 718 will probably also come in an electric version, and at the same time the automaker is preparing to modernize the 911.
An increase in the dividend can be expected
In terms of products, Porsche has a lot to offer, but the same applies to the financial results. Sales are growing, so are revenues, operating profit is on the order of 10 percent annually, the EBITDA margin will exceed 25 percent this year (more than twice that of classic brands), the net cash flow margin will be 10 to 12 percent this year.
I also expect an increase in the dividend in 2024 from one euro to 2.5 euros per share. Yes, in terms of valuation, Porsche trades at a premium compared to classic manufacturers, but EV/EBITDA indicators of around 5, P/E at the level of 13 times annual profits are interesting from my point of view – for comparison, Ferrari (RACE) moves at P/E levels above 40 and Ev/EBITDA above 25. Porsche also has negative net debt, with cash exceeding debt instruments by more than 11 billion euros (around 12 euros per share).
The growth in shares since November of this year has been really strong, but Porsche shares have been avoided. We can speculate why when other automakers were growing. Apparently the concern that 2024 will be tougher for Porsche than 2023 has prevailed, but in my opinion, thanks to both the Cayenne and Panamera lineup changes, Porsche’s margins will be even higher and will compensate for some of the loss in sales of the gasoline Macan. Its sale will be stopped in EU countries from March 2024 for regulatory reasons.
In addition, the new electric Macan will be a bestseller in my view, just like its gasoline predecessor, which has been on the market since 2014! For all the above reasons, I find Porsche shares interesting and somewhat neglected by the market, so I am considering them as part of expanding my portfolio.
The answer to the question posed at the beginning of the text is therefore unequivocal and sounds yes.
The author is a portfolio manager of J&T Investment Company
2023-12-29 17:30:00
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