Porsche: Initiating Coverage With EUR 90 Fair Value Estimate and Narrow Moat Rating

We have initiated coverage of the shares of Porsche AG P911 with a EUR 90 fair value estimate. Because of its intangible assets, including brand strength and intellectual property, Porsche has a narrow economic moat rating. The brand is synonymous with motorsports and highly engineered, fun-to-drive sports cars. Brand strength has enabled a premium to luxury price range across Porsche’s product portfolio, while intellectual property supports the brand image from racing-inspired engineering and well-executed product. Porsche is one of only a handful of automakers to which we assign an economic moat. Even so, the 2-star-rated shares currently trade at a 27% premium to our fair value.

Since 2005, the company has generated average annual returns on invested capital 670 basis points above its cost of capital, a solid performance for an automaker. Given the aspirational nature inherent in the company’s brand, as well as growth potential from increasing wealth, high-end portfolio expansion, and increased personal customization, we believe the company will continue to reward investors with solid returns.

Porsche has consistently generated revenue and volume increases above industry growth rates. From 2004 to 2022, worldwide light-vehicle sales grew at a 1.7% average annualized rate. Since 2004, Porsche’s consolidated revenue and unit volume grew at annual averages of 10.6% and 8.1%, respectively. Knight Frank forecasts 9% average annual growth in the population of the world’s high-net-worth individuals to 2027, supporting continued potential mid- to high-single-digit volume growth for Porsche.

During the last 15 years, Porsche’s EBIT margin has had a high, low, and median of 18.1% (2010), 11.7% (2008), and 16.6%, respectively. Management’s objectives are for 17%-19% this year and into the midterm but 20% or more in the long term versus 18% in 2022. We view the objectives as reasonable if management executes on high-end portfolio expansion and customer personalization.