Taking Stock of Porsche
When is owning a car company even better than owning its products?
By Leow Ju-Len
ASSUMING YOU COULD own any car company in the world, which would you rather have: a giant with US$193 billion a year in revenues and global sales of 8.4 million cars a year, or a tiny operator with a turnover of 6.3 billion Euros and a yearly output of less than 77,000 cars?
If you chose the former, congratulations! You’ve just picked General Motors, a company which investors reckon is such a bad place to put your money that it’s essentially worth more dead than alive – its net tangible asset value is US$26.6 billion, but its market capitalisation is about US$7 billion less than that. More importantly, you’ve just passed up the chance to own Porsche, which in business terms might just be the best car company in the world today.
Consider the following: in its just-released half year report, the company had plenty of good news to share. Turnover was up 3.9 percent in the six months leading up to January 31st, sales climbed 9.9 percent and pre-tax profits were 7 percent higher.
The company is building more cars than ever, has been adding to its workforce, and is spending almost a quarter-billion Euros to make production leaner and tool up for new models. Porsche’s operating margins in its last fiscal year were about 17 percent, an untouchable figure in the car business.
Assuming you had the patience to hang onto your shares until today, an investment in Porsche would have rewarded you handsomely. At the company’s initial public offering in 1984 (a year before Stuttgart Auto became the local importer, incidentally), each share was worth roughly 50 Euros (adjusted for stock splits). Today the stock trades on German bourses for roughly 670 Euros. In its 21 years as a listed company, there’s been plenty of opportunity for investors to hop aboard the Porsche money machine. Between the launches of the first Boxster and last year’s new model, the stock climbed 858 percent.
And if you’d put ten grand into Porsche about a decade ago, your investment would now be worth about $170,000. Compare and contrast with, say, Nissan, widely hailed as the car industry’s great turnaround story. Even if you’d grabbed the company’s stock at its lowest price around five years ago, you would merely have tripled your money. No doubt about it; the best car company to own is Porsche.
Sure, the sportscar specialist has been through tough times before. After being caught with its pants down when the exuberance of the 1980s ended and the soaring Deutschemark hammered exports, Porsche saw sales collapse to 14,000 units in 1993.
The company hired Wendelin Wiedeking, then just 38 years old, to step in. By being practical (he hired Japanese engineers to clean up production processes), bold (he decided to build the Cayenne SUV, which now accounts for half of Porsche’s sales) and smart (he got VW to pick up the development bill for the Cayenne so they could use the platform for their own Touareg), Dr Wiedeking has turned Porsche into a dream investment.
The company expects further gains in sales and profits for the rest of the fiscal year. It’s on track to bust the 80,000 cars a year level for the first time. And Dr Wiedeking is still in charge. In fact, the picture is so rosy that analysts have targeted stock prices as high as 800 Euros for the company. If you’ve always lusted for a 911 or Boxster, then, you might want to consider a novel way of building the wealth to get it: buy Porsche, and then buy a Porsche.
[The writer does not own shares in any of the companies mentioned]
