DB:NSU - Audi AG

[Guest Schwab711]

This is an odd situation with no foreseeable catalyst. The situation appears to be similar to FCAU/RACE, but without a motivated CEO. No opinion on valuation yet, but it appears to be extremely cheap with a low-probability, high-reward potential. The downside appears to be limited as EV approaches $0.

 

A few recent, related articles I've found:

http://www.spiegel.de/wirtschaft/unternehmen/volkswagen-chef-matthias-mueller-weitreichende-umstrukturierung-bei-vw-a-1166755.html

http://www.markuselsaesser.com/en/blog/post/audi-stock-undervalued-13002

https://www.forbes.com/sites/neilwinton/2017/07/04/volkswagen-should-spin-off-components-like-audi-porsche-vw-brands-to-boost-value-analyst/

 

The brands owned by Audi:

Audi

Lamborghini

Ducati

In addition, vehicles of the Bentley, SEAT, Škoda, Volkswagen Passenger Cars and Volkswagen Commercial Vehicles brands are sold through the Group-owned sales subsidiaries

 

Ownership:

VW owns 99.55% of Audi's stock. There have been rumors of a spin-off of Audi since as early as 2001, but have picked up in the last 3 months or so (I believe 3 separate articles/sell-side reports pushing for the move - Evercore ISI probably has the best report though I haven't read the full thing).

 

Financials (All figures in EUR):

MC: $30.5b

Cash: $19.4b

Debt: $0.55b

LT Investments: $5.5b (here is a large portion of this - https://here.com/en)

EV: $12.3b

 

BV: $26.9b

P/B: 1.1x

 

Sales: $59.3b

P/S: 1.9x

 

EBITDA: $8.1b

EV/EBITDA: 1.5x

 

EBIT: $5.7b

EV/EBIT: 2.2x

 

P/E (ex-cash; 7.5% net margins): 2.6x

[Guest Schwab711]

The attached is GS's SOTP opinion for VW preferreds.

 

This works out to EV = $26.43b or 115% upside.

[Spekulatius]

The problem is why would the owner VW change anything? The Beherrschungsvertrag governs what Audi Shareholders get and even a spinoff or sale of some of their brands would not change that. Some companies live under such a contract forever. I don't recall a case where shareholders from a company governed by a Beherrschungsvertrag came out ahead. I guess it is possible, but you could wait decades.

[Guest Schwab711]

Yeah, that's why it's at 1.5x EBITDA. History says nothing will change. Recent articles about/by political parties, newspapers, and equity analysts suggests that appetite for change is growing. I don't know. I was hoping someone from Germany could weigh in.

[Spekulatius]

Yeah, that's why it's at 1.5x EBITDA. History says nothing will change. Recent articles about/by political parties, newspapers, and equity analysts suggests that appetite for change is growing. I don't know. I was hoping someone from Germany could weigh in.

 

I am from Germany and I did weigh in. I have been living in the US for 20 years now, so I guess I could judge the sentiment wrong.

[Guest Schwab711]

I'm reading my response again and I'm sorry if I came off as a jerk. That wasn't my intention.

 

Do you have any thoughts on the election? My understanding is the Lower Saxony election could play some role in VW's 'restructuring' over the next few years.

[Sunrider]

I'm reading my response again and I'm sorry if I came off as a jerk. That wasn't my intention.

 

Do you have any thoughts on the election? My understanding is the Lower Saxony election could play some role in VW's 'restructuring' over the next few years.

 

Forget it. VW will only change to the extent it has to and politicians will only do what they can’t avoid doing (e.g. Dieselgate had to have a reaction). Remember VW is the company that paid for hookers and Brazil trips for its worker’s representatives on the board, which came out a few years ago ... what happens? Not much, some people go and back to business as usual.

 

The election doesn’t change that and, from what I could tell, VW wasn’t even remotely a topic. Remember also that the state as shareholder is not interested in dividends - politicians are interested in workers that then keep voting for them.

 

I know someone who’s short VW because he believes the pension accounting is screwed up and they are de-facto worth a whole lot less if you assume they capitalise the pension obligations properly. My view is that this may well be correct, but that doesn’t mean the stock is going to zero. It’s too big in Germany and in its home state, there will always be some muddle through.

 

[Spekulatius]

i agree with above, the election has no impact on how VW goes about their business. VW used to be influenced by Nordrhein Westfalen state politicians when they had a higher stake (~25%) but now their stake is much lower and the state had less influence. In any case, I don’t see politician necessarily pushing for monetization or VW assets anyways, regardless of who is in power. The election is a non-even for Audi shareholders.

[Spekulatius]

I'm reading my response again and I'm sorry if I came off as a jerk. That wasn't my intention.

 

Do you have any thoughts on the election? My understanding is the Lower Saxony election could play some role in VW's 'restructuring' over the next few years.

 

No offense taken, just stating facts, as I see them. I already posted my opinion regarding political change above. I think VW stock itself could be or become a value play. I know that in the past it has traded for 2 x EBITDA from time to time,

[compounding]

VW withdraws Ducati sale amid unions' opposition

 

http://europe.autonews.com/article/20171002/ANE/171009958/vw-withdraws-ducati-sale-amid-unions-opposition?utm_source=dlvr.it&utm_medium=twitter

 

"Ducati's CEO told workers Friday that the VW supervisory board decided to halt the sale process," Bruno Papignani, regional head of FIOM CIGL union, said in a phone interview. "IG Metall sustained and helped Ducati workers in their request to remain inside the VW Group which should keep investing in our company."

[Guest Schwab711]

I knew I couldn't count on VW to act rationally!