Porsche SE – Holding company discount

Porsche SE price as of writing – 55.06 EUR

A holding company discount trade allows you to buy a subsidiary company at a discount to its current market value. This is similar to a closed ended fund discount where the net asset value (NAV) of the fund is larger than the funds market value.

In plain English, you can buy shares in a subsidiary for less than what you would pay if you were to buy the subsidiary directly.

Porsche Automobil Holding SE (PAH3) is a German listed holding company with over 90% of its assets is in Volkswagen. It owns a 30.8%¹ equity stake in Volkswagen. At current prices² buying Porsche SE allows you to buy Volkswagen at a discount of about 24%.

Discount = (Market value of holding company / Market value of stake in subsidiary) -1

Discount =(16.8 billion EUR / 30.8% x 71.9 billion EUR) -1= 24% discount

Porsche SE is the holding company with a current² market value of 16.8 billion euros and it owns 30.8% of the capital in Volkswagen, which is equal to a market value of 22.1 billion euros. Buying Porsche SE gives you ownership of Volkswagen at a 24% discount.

Porsche SE is also statistically cheap and currently selling below its tangible book value at a PB ratio of 0.55.

Volkswagen recently announced a $ 25 billion investment in battery technology. This is more than double Tesla’s total capital expenditure since 2006. Tesla is likely to face stiffer competition going forward.

In summary, buying Porsche SE allows you to buy Volkswagen at a 24% discount. It is a discounted bet that Volkswagen will do well as cars transition from internal combustion to electric. 

¹Porsche SE 2017 Annual report

²Based on closing price on 28th June 2018

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