Volkswagen / Porsche SE

Transcription

1 Equity Research Quick Bite Sector 24 January 2014 Volkswagen / Porsche SE VW s consensus undershoots Momentum turns around Based on its 2014E P/E ratio, VW is the cheapest DAX-company overall and, together with Renault, the cheapest European OEM and we have an idea why that is: consensus fell by a spectacular 25% in the last 16 months, providing an ongoing drag on performance. We believe we have now arrived at the inflection point, as registrations recover, order intake picks up and prices stabilise. We slightly lower our 2014 estimates and slightly increase our 2015 estimates now we find ourselves above consensus for the first time in a while. Our target prices moves from 205 to 235 and we reiterate our Buy rating on VW. Due to the increased target price we increase our fair value for Porsche from 70 to 85. With the limited upside from the current levels we cut our rating on Porsche SE from Buy to Hold. VW Buy TP 235 (from 205) CP Porsche Hold (from Buy) TP 85 (from 70) CP (Close 23 January 2014) VW underperformed as consensus declined VW shares increased by 18.6% in 2013, underperforming Daimler by 32%-points and PSA by 45%-points. How can the market ignore the cheapest German DAX company so much? The reason is negative momentum: at the beginning of 2013 we had 85% Buy ratings and no Sell rating and consensus earnings had to decline by 25% from 17bn to slightly below 13bn. The decline in estimates was mainly driven by a weaker European market, especially as German demand missed expectations. but consensus is getting to its inflection point We expect the decline in earnings expectations to bottom out at the level c. 13bn. We met with OEMs and suppliers at our New York conference in January and we see rising evidence that Europe is turning around. This is reflected in pricing data and order intake (reported by German Industry Association VDA). Representing an estimated 65% of Group earnings, Europe has a very significant impact on VW s P&L. We believe consensus assumes over a 1bn negative price effect in 2014 year on year. Should Europe stabilise we rather expect a neutral pricing effect. Adjusting estimates Our own estimates are lagging consensus: We lower our 2014 EBIT estimates from 13.8bn to 13.2bn due to lower volumes and less positive contributions from MQB (we are shifting some 300m from 2014 to 2015). However, following the significant fall in expectations in the past months we now find ourselves above market expectations. For 2015 our EBIT estimates slightly increase to 15.3bn. Momentum turning positive Valuation might be useless when momentum is negative. VW s valuation is highly attractive and we see momentum now turning positive. Accordingly, we believe current levels are good entry levels. Based on increased peer multiples we increase our target price from 205 to 235. This implies a target 2015E P/E ratio of 8.7x. If we were to assume a 6% EBIT margin for VW brand, 10% for Audi we would arrive at 31 EPS for 2015E. Using Toyota s P/E ratio would yield a fair value of 300. Porsche: downgrade to Neutral We use our increased fair value for VW in our sum-ofthe-parts valuation for Porsche and we lower the assumed litigation risk from 4.5bn to 3.5bn: our target price moves from 70 to 85. Given the limited upside we downgrade our rating to Hold from Buy. Porsche remains an attractive access to VW, however, the spread to NAV has decreased substantially, the current share price implies c. 1.7bn litigation cost. Key valuation data E 2014E 2015E VW EV/EBITDA (x) EV/EBITA (x) P/E (x) Porsche EV/EBITDA (x) n.m. n.m. n.m. n.a. n.a. EV/EBITA (x) n.m. n.m. n.m. n.a. n.a. P/E (x) Source: Company, Commerzbank Corporates & Markets Analyst Daniel Schwarz, CFA daniel.schwarz@commerzbank.com Analyst Sascha Gommel sascha.gommel@commerzbank.com research.commerzbank.com For important disclosure information please see pages 14 and 15.

2 Key investment thesis on VW The key thesis of this report is: VW shares performed poorly in 2013 due to falling consensus estimates (see page 2) and consensus declined because the European market was weaker than anticipated by most (see page 3) and pricing, interest rates, base effect, order intake, feedback from suppliers imply: Europe now starts turning around after six years of decline (see pages 3-5) No 2013-like shock to consensus: expectations seem better managed this time, they already declined 25% BEFORE management provides a guidance (see page 6) On page 7 we adjust our estimates and find out: consensus finally undershoots Conclusion: As consensus bottoms out, momentum turns positive and VW should catchup to European peers. We see no reason why VW should trade at the lowest P/E ratio among European peers, with a significant discount to suppliers and the lowest multiple in the DAX. VW performed poorly because consensus declined In 2013, VW was the weakest performer (together with BMW) among European peers, VW underperformed Daimler by 32%-points and PSA by 45%-points (surely we should not forget the share doubled in 2010 and increased 55% in 2012). Valuation is not the issue: the weaker performance in 2013 was despite VW being the cheapest DAX company overall (even some 8% discount to the second cheapest and post the 25% consensus correction) and together with Renault it trades on the lowest 2014E P/E ratio in Europe. TABLE 1: 12-month share price performance OEMs Perf. 1Y Driver in 2013 BMW 14,8% Flat earnings, model cycle peaked Daimler 46,6% Model cycle and rising estimates Volkswagen (pref.) 14,8% Falling consensus estimates Porsche (pref.) 25,6% Reduced legal risks Fiat 66,0% Corporate action Renault 54,8% Excellent Dacia business and Nissan performance Peugeot 59,7% Restructuring action and reduced financing cost estimates, Bloomberg The reason for the underperformance is easy to identify: the 2014 EBIT consensus declined from above 17bn in September 2012 to c. 13.2bn. Adjusting for outdated estimates, the market expectations for 2014 EBIT seem to be even more cautious just below the 13bn mark. The share cannot perform against a 25% decline in expectations. The annoying thing for VW shareholders in 2013 was: even at 13bn the valuation is cheap January 2014

3 CHART 1: Consensus estimates, Commerzbank s new & old EBIT forecast /28/2012 3/28/2012 4/28/2012 5/28/2012 6/28/2012 7/28/2012 8/28/2012 9/28/ /28/ /28/ /28/2012 1/28/2013 2/28/2013 3/28/2013 4/28/2013 5/28/2013 6/28/2013 7/28/2013 8/28/2013 9/28/ /28/ /28/ /28/2013 Yr 14 EBIT Estimate CBKe old CBKe new Source: Bloomberg consensus declined because Europe was weak The more relevant question is what caused the massive decline in expectations? We think a combination of several factors, e.g. the cost savings from MQB are a fine source for confusion: VW guides for 20% unit cost savings, but it is unclear on what percentage of parts of the car this applies and how this compares to cost savings on new models in the past. We reduce our assumptions for MQB cost savings in 2014 by some 300m (please see our EBIT bridge on page 6). Second, markets are to blame: in China Japanese competitors came back after they lost share in 2012, in Brazil pricing deteriorated and, most importantly, Europe declined for a sixth year in a row. Within Europe, Germany in particular was a massive negative surprise, despite a moderate 0.4% GDP growth, record high employment rates and record low interest rates, new light vehicles registrations declined by 3.8% year on year to 3.2m units. VW sells 42% of its vehicles in Europe. We estimate that VW generates some 65% of group pretax profit in Europe, a large part of that in Germany, given a rich mix, a high portion of financing and leasing and higher ASPs. Accordingly, the surprising weakness (Germany missed the forecasts by the VDA, LMC and Commerzbank, VW was guiding for a weaker German market right from the beginning of the year) explains a large part of the correction we have seen in the consensus, accompanied by a cautious guidance (that unfortunately turned out to be right). and Europe eventually turns around If we had to pick one key message for the automotive sector from Commerzbank s GIS in New York in mid-january: the European market is about to recover. Wow big deal! you might say this is highly anticipated and consensus view. However, after six years of falling volumes, increasing discounts we believe this will be the dominant theme in If we know when consensus turns positive, we know when VW starts outperforming the sector. Consensus turns positive when confidence in the European market rises. Including December we have seen four months with positive year-on-year growth rates. 24 January

4 CHART 2: European car registrations adj. for selling days CHART 3: LTM European car registrations 8% 6% 4,6% 5,7% 7,1% Millionen % 16 2% 15 --% 0,4% 0,5% 15 (2%) (1,6%) (0,6%) 14 (4%) 14 (6%) (5,7%) (6,0%) (5,9%) (8%) (7,9%) (8,5%) (10%) Jan 13 Feb 13 Mrz 13 Apr 13 Mai 13 Jun 13 Jul 13 Aug 13 Sep 13 Okt 13 Nov 13 Dez Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13, ACEA, ACEA What will happen in the coming three months? Consensus now expects small growth for Europe (we are at 3.5%, slightly above consensus we believe, LMC is at 2.8%). Given the low basis and accelerating momentum, the growth rates in the coming months might look much better than this. Especially in January to May, Europe is running against a very favourable low basis (see Chart 2). We believe that enthusiasm for exposure to Europe will continue to rise in the coming months, and VW should benefit from this. We are forecasting 3.5% growth for Europe. This is slightly above consensus estimates of around 2%. For our detailed volume estimates please see the appendix of this report on page 13. As a basis for our forecast we use our economists expectations for growth. Real GDP in the Eurozone is expected to grow by 0.9%, following a 0.4% contraction in In Germany, the largest vehicles market, GDP growth is expected to increase from 0.4% to 1.7%, in France from 0.2% to 0.5%. Used car prices started to increase recently in Germany. The more expensive used car prices are getting, the more willing consumers become to buy new cars. CHART 4: : Used car prices work fine as a leading indicator for new car sales Thousands 17 8% (5.8%) (6.5%) (6.4%) (5.7%) (4.7%) (4.3%) (4.0%) (3.2%) (0.7%) 0.9% 2.6% 3.0% 3.9% 5.2% 5.3% 5.2% 4.7% 4.1% 3.4% 2.9% 1.9% (0.3%) 0.0% 0.7% 1.5% 0.1% 0.2% (0.1%) (0.1%) (0.5%) (0.7%) (0.2%) (0.7%) 0.9% 0.8% 0.1% (1.1%) (0.1%) (1.2%) (1.4%) (2.1%) (1.6%) (0.4%) 0.6% 2.1% 2.1% 6% 4% 2% 0% (2%) (4%) (6%) (8%) 14 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 (10%) Growth y/y Used car index (AGPI) Source: Autoscout January 2014

5 Pricing deteriorated again in 2013 as it should with declining sales volumes and over-capacity. However, we cannot see deterioration in VW s pricing in recent months. To receive data on pricing in Europe we are tracking the offers for some 65 cars from eight large online-dealers in Germany, UK and France on a monthly basis. The discounts provided in Graph 5 are the best offer for the respective cars without additional options. CHART 5: Pricing for VW brand in Germany, UK, France 23% 21% 19% 17% 15% 13% 11% 9% 7% 5% Dec 12 Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13 Germany (Ø discount) UK (Ø discount) France (Ø discount) The chart implies that pricing should not provide an additional headwind in 2014 year on year. We believe consensus expectations for VW include another over 1bn headwind from pricing. Based on current developments and our expectation of stabilising demand in Europe we expect neutral pricing in our EBIT bridge. This might look like a bold assumption, following several years of price declines. However, volumes stabilise and some capacity is leaving the European market in the course of Accordingly, capacity utilisation should increase in the course of 2014, supporting the pricing discipline among OEMs. Lessons from 2013 expectations seem to be better managed this time VW investors will well remember what happened in On 22 February VW provided a bearish outlook for 2013 that was some 17% below market expectations at that time. At the analyst meeting later in March, management did not suggest that guidance was conservative but highlighted headwinds for the industry in CHART 6: 2013 EBIT consensus was not prepared for management s cautious guidance Yr 13 EBIT Estimates Q4 press release and 2013 guidance 1/15/2012 3/15/2012 5/15/2012 7/15/2012 9/15/ /15/2012 1/15/2013 3/15/2013 5/15/2013 7/15/2013 9/15/ /15/2013 1/15/2014 Source: Bloomberg Could we face a similar situation in 2014? We think the risk for a similar disappointment is limited. First, expectations seem to be better managed. Before the Q release, expectations decreased some 5% from peak levels and had to decrease another 17% thereafter. 24 January

6 However, before the release of Q results, consensus had already decreased by 25%. And according to our estimates, there is more upside than downside from here. CHART 7: 2014 EBIT consensus already declined sufficiently Yr 14 EBIT Estimates Q4 press release and 2014 guidance 2/28/2012 4/28/2012 6/28/2012 8/28/ /28/ /28/2012 2/28/2013 4/28/2013 6/28/2013 8/28/ /28/ /28/2013 2/28/2014 Source: Bloomberg In addition to the different levels of consensus estimates the market development is different to Around the release of Q results the market was confronted with very weak monthly sales figures (European January 2013 sales down 8.5% year on year), for the coming months we expect very promising headline figures January 2014

7 Change to estimates: shift some profits to 2015 We are lowering our estimates for 2014 and slightly increase our estimates for The negative changes for 2014 include slightly lower volumes, less tailwind from MQB. Positive changes include pricing and Porsche. TABLE 2: Estimates overview 2014E 2015E m CB old CB new Consensus CB old CB new Consensus Revenues 205, , , , , ,011 EBIT 13,828 13,228 13,180 15,130 15,334 15,125 Pre-tax profit 16,015 15,203 15,290 18,140 18,146 17,436 EPS 23,44 22,25 23,16 26,45 26,57 25,96 estimates, Bloomberg TABLE 3: Our EBIT bridge Operating Profit in: FY 2011 FY 2012 FY 2013 FY 2014 bn Volume/Mix/Price thereof Vol thereof Mix thereof price FX Product costs Fix/launching costs/depr Scania Financial services other Porsche Operating Profit in: FY 2012 FY 2013 FY 2014 FY : EBIT moves from 13.8bn to 13.2bn, now slightly above consensus Our key assumptions for 2014: 3.5% volume growth outside China, 20% operating leverage, neutral pricing, 800m FX headwind, 1.5bn help from product cost, 1.15bn headwind from fixed-cost/depreciations. We discuss the factors below. Volume growth: We reduce our volume growth assumption from 5% to 3.5%. For Europe we keep our positive view, as described above. However, for the US regions (due to a lower market share), for Brazil (lower market volumes), for Russia (lower market volumes) we have reduced our volume estimates. Including China we estimate 5% volume growth (previously 6.2%). In our EBIT bridge we arrive at 791m volume effect, assuming some 20% operating leverage). This is some 200m reduction compared to our previous forecast. Our mix assumptions remain largely unchanged, on a group level we see a slightly positive mix effect. Product cost: In 2014 the number of cars to be produced on MQB increases from some 1m units to 2m units (thereof 500k in China), with increasing volumes for the Golf, Skoda Octavia, Seat Leon and (towards the end of 2014) the new Passat. We estimate that the combination of reduced upfront cost and positive labour cost and material cost savings yields a year-on-year improvement in Product Cost of some 1.5bn (slightly below the 1.6bn we forecast for 2013). Some 1.1bn we estimate to come from MQB, the remaining 0.4bn from other product cost improvements. 2015: volumes & pricing & product cost For 2015 our key assumptions remain unchanged. We assume a slightly lower operating leverage of 18% as capacity utilisation increased. For pricing we expect 1bn tailwind and from currencies we model some 800m headwind. 24 January

8 Additional cost savings from Product cost are expected to be 1.25bn as a function of volumes produced on MQB and MLB further ramping up. For Porsche we assume an increase in EBIT from 2.75bn to 3.02bn. Recently, the German weekly magazine Wirtschaftswoche reported that Porsche mulls increasing production of the new small SUV Macan from 50k units to 80k units. According to the article, the 2014 volumes are sold out and waiting time is some 13 months (our local Porsche dealer in Frankfurt could confirm this). Porsche recently unveiled the details for the Macan, deliveries start on 5 April, three versions are available, starting price is 57,930. We believe that profitability of the Macan should be similar to the Cayenne at c. 15% margin (the price for the 3l version is some 16% above a comparable Audi Q5 that shares a high portion of common parts). Volkswagen will host a launch event for the Porsche Macan on 10 April in Leipzig we expect supportive news flow from the event. All in all we arrive at 15.3bn EBIT and EPS for 2015E, compared to consensus of 15.1bn EBIT and EPS (source: Bloomberg) January 2014

9 TABLE 4: Peer group valuation Valuation: target P/E ratio of 8.7x We use a sum-of-the-parts valuation for Volkswagen. For Audi and Bentley we use the same multiples as for Mercedes and BMW. For Porsche we use a similar EV/EBIT multiples (which might be unfair due to Porsche s superior growth profile) but a higher EV/Sales multiple to reflect the sustainably higher profitability. We are valuing MAN and Scania in line with Volvo and use the same multiples as for Daimler Trucks. We value the Chinese JVs with a P/E ratio of 8.3x on 2015 estimates, in line with multiples of Chinese peers. Based on our 2015 estimates our target price moves from 205 to 235. This implies a target P/E ratio of 8.7x, which we regard conservative. To get to our 2015 estimates we assume a 4.6% EBIT margin for the VW brand. CFO Pötsch implied at the Frankfurt Motor Show that 6% will be achieved before Bull-case scenario: if we were to assume 6% EBIT margin for the VW brand, 10% for Audi we would arrive at 31 EPS for Using Toyota s P/E ratio would yield a fair value of 300. EV/Sales EV/EBITDA EV/EBITA P/E OEMs Rec BMW Add 0.51x 0.47x 3.4x 3.1x 5.6x 5.0x 10.4x 9.4x Daimler Buy 0.49x 0.45x 4.2x 3.6x 5.7x 4.8x 9.6x 8.2x Fiat Hold 0.37x 0.35x 3.6x 3.2x 8.0x 6.9x nm 9.8x Renault Hold 0.01x nm 0.1x nm 0.4x nm 8.2x 5.9x Peugeot SA Add 0.17x 0.16x 3.1x 2.5x 63.8x 12.0x 20.9x 5.9x Porsche Buy nm nm nm nm nm nm nm nm VW Buy 0.37x 0.35x 3.1x 2.6x 5.8x 4.7x 9.1x 7.5x Average (excl. Porsche) 0.32x 0.35x 2.9x 3.0x 14.9x 6.7x 11.6x 7.8x 24 January

10 TABLE 5: VW 2015e SOP Valuation Asset Revenue Multiple EV EBIT Multiple EV AVERAGE /SHARE Volkswagen % ,2x Skoda % ,5x SEAT % ,2x Mass Brands % ,1x Audi % ,7x Bentley % ,7x Porsche AG % ,7x Ducati % ,7x Premium Brands % ,7x Commercial Vehicles % ,0x Scania % ,0x MAN % ,5x Trucks % ,0x Other % ,0x TOTAL OF FULLY CONSOLIDATED INDUSTRIAL ASSETS Associates / Other Stake Method Financial Services 100,00% RoE/CoE VW China 50%/45% PE-ratio Suzuki market price SGL Carbon market price Net Cash/(Debt) Pension Other Minorities TOTAL EQUITY VALUE Holding Discount % TARGET PRICE January 2014

11 TABLE 6: Divisional estimates Vehicles sales (in thousands) 2012 y-o-y Q Q y-o-y 2014 y-o-y 2015 y-o-y Volkswagen Passenger Cars 4,850 9% 1,123-8% 1,201-1% 4,700-3% 4,925 5% 5,100 4% Audi 1,299-16% 312-4% 306 3% 1,310 1% 1,380 5% 1,420 3% ŠKODA 727 5% % 186 6% 710-2% 750 6% 780 4% SEAT % 91-6% 110-4% 445 4% 485 9% 525 8% Bentley 9 29% 3 50% 2 0% 9 0% 10 6% 11 11% Volkswagen Commercial Vehicles 437-1% 105 3% 115 7% 440 1% 470 7% 490 4% Scania 67-16% 18 20% 24 20% 80 19% 85 6% 92 8% MAN % 33 0% 40 21% 138 3% 145 6% 160 7% VW China 2,609 19% % % 3,100 19% 3,500 13% 3,750 7% Other -1,278-11% % % -1,350 6% -1,550 15% -1,580 2% Porsche % 47 18% % % Volkswagen Group 9,345 12% 2,368 1% 2,504 6% 9,744 4% 10,377 6% 10,943 5% of which: Automotive Division 9,345 12% 2,368 1% 2,504 6% 9,744 4% 10,345 6% 10,943 6% VW excluding China % 1,591-4% 1,698 1% 6,644-1% 6, % % Sales revenue ( m) 2012 y-o-y Q Q y-o-y 2014 y-o-y 2015 y-o-y Volkswagen Passenger Cars 103,942 10% 23,866-9% 24,935 0% 99,168-5% 102,428 3% 105,555 3% Audi 48,771 11% 11,731-7% 11,287 2% 48,252-1% 50,107 4% 51,309 2% ŠKODA 10,438 2% 2,399 11% 2,672 4% 10,037-4% 10,452 4% 10,818 4% SEAT 6,485 20% 1,388-4% 1,613-4% 6,630 2% 7,126 7% 7,678 8% Bentley 1,453 30% % % 1,431-2% 1,489 4% 1,639 10% Volkswagen Commercial Vehicles 9,450 5% 2,234 0% 2,362 0% 9,373-1% 9,872 5% 10,242 4% Scania 9,314-7% 2,268 7% 2,866 11% 10,231 10% 10,717 5% 11,546 8% MAN 15, % 3,713-6% 4,508 6% 15,850 3% 17,228 9% 18,377 7% Other -36,927 9% -8,957 1% -10,142 4% -39,512 7% -41,487 5% -43,562 5% Volkswagen Financial Services 17,872 13% 4,570 4,561 0% 18,819 5% 20,041 6% 21,134 5% Porsche 5,879 3,396 3,981 7% 14, % 15,001 4% 16,707 11% Volkswagen Group 192,676 21% 46,987-4% 49,006 1% 194,680 1% 202,974 4% 211,443 4% Operating result ( m) 2012 y-o-y Q Q y-o-y 2014 y-o-y 2015 y-o-y Volkswagen Passenger Cars 3,640-4% 623-3% 753-4% 2,870-21% 3,042 6% 4,152 36% 3.5% 2.6% 3.0% 2.9% 3.0% 3.9% Audi 5,380 1% 1,099-17% 1,057-10% 4,800-11% 4,720-2% 4,750 1% 11.0% 9.4% 9.4% 9.9% 9.4% 9.3% ŠKODA 712-4% 128 8% 144-1% % % 620 7% 6.8% 5.3% 5.4% 5.1% 5.5% 5.7% SEAT (156) -31% (53) 0% (7) -89% (100) -36% % % -2.4% -0.3% -1.5% 0.3% 0.9% Bentley % % 37 37% % % 155 3% 6.9% 10.6% 10.2% 9.4% 10.1% 9.5% Volkswagen Commercial Vehicles 421-6% 96 66% 118-2% 460 9% % % 4.5% 4.3% 5.0% 4.9% 5.7% 6.1% Scania % 227 8% % 1,005 8% 1,132 13% 1,321 17% 10.0% 10.0% 11.0% 9.8% 10.6% 11.4% MAN % 171 6% % % % 1,185 19% 5.1% 4.6% 5.6% 1.9% 5.8% 6.4% Other (2,681) 66% (582) -32% (625) -39% (2,400) -10% (2,197) -12% (2,040) -7% 7.3% 6.5% 6.2% 6.1% 5.3% 5.1% Thereof PPA 1, % % 1,400 1, Volkswagen Financial Services 1,410 17% % % 1,490 6% 1,480-1% 1,480 0% 7.9% 9.4% 8.0% 7.9% 7.4% 7.0% Porsche % % 2,570 2,750 3, % 17.6% 17.0% 17.8% 18.3% 18.1% Volkswagen Group 11,510 2% 2,777 3,084 11,645 1% 13,228 14% 15,334 18% 6.0% 5.9% 6.3% 6.0% 6.5% 7.4% 24 January

12 Porsche: spread has declined We are updating our sum-of-the-parts valuation for Porsche with our new fair value for Volkswagen. We use the 223 fair value for VW ordinary shares (5% discount to the preference shares) and apply a 20% Holding discount. The progress on the litigation front is annoyingly slow and we will very likely not have transparency on the legal risks in the short term. Nevertheless, Porsche achieved some milestones in the past twelve months. Most recently, on 21 January, three plaintiffs that wanted to pause the civil cases in Brunswick to await the outcome of the criminal cases against the former management in Stuttgart lost their bid. This implies that the Brunswick court (which has ruled in favour of Porsche in the past) has the intention to accelerate the process. We are reducing the assumed value of litigation risk in our sum-of-the-parts valuation from 4.5bn to 3.5bn. As a result, we arrive at a fair value of 85. Given the limited upside, we lower our rating from Buy to Hold. Porsche remains an attractive access to VW for those who like the VW investment case. The spread, i.e. the implied discount to VW, has shrunk in the past twelve months. TABLE 7: Sum of the parts Porsche SE Value per share Share Value 50.7% of VOW shares Net debt / (cash) (2,589) (8.46) Litigation risks 3, Equity Value Number of shares 306 NAV per share Conglomerate discount 20.0% Fair value per share If we would use the current VW ordinary share price, apply 20% Holding discount we arrive at an implied litigation risk of 1.7bn. We see limited downside to this number, which implies limited upside to the PAH-VW spread. TABLE 8: At current share prices for VW and Porsche some 1.7bn legal risks are priced in Value per share Share Value 50.7% of VOW shares 29, Net debt / (cash) (2.589) (8,46) Litigation risks 1, Equity Value 30,379 NOSH 306 NAV per share Conglomerate discount 20.00% Fair value per share The next news flow on Porsche should be from the hearing in Brunswick in April. Whether the three cases mentioned above (those that will not be on hold until the criminal case in Stuttgart is concluded) will be added to the hearing in April is not clear yet. What s the upside risk from here? Table 6 shows that currently the implied litigation risk is some 1.7bn. If we were to remove this it would be worth some 5.56 per Porsche share, some 7% upside from the current level. It seems very unlikely that we will get transparency on the outcome of the cases in Germany (in Brunswick and Hanover) and in the US (there is still an open case at the New York district court that was appealed). We are using a Holding discount of 20% and use Heineken Holding as a benchmark. In case of a merger of Porsche SE and VW the discount would disappear. However, we have no indication that this could materialise in the short term. As a pre-condition, litigation risks would have to be resolved. Second, VW preference shareholders would have to agree on a merger and we struggle to see an incentive for this shareholder class January 2014

13 Appendix Light vehicle sales (#m) West Europe France Germany Italy Spain UK Other East Europe Russia Asia China India Japan North America USA South America Brazil Other Total Light vehicle sales ( y/y) West Europe (3.7%) (0.4%) (8.4%) (2.7%) 3.5% 4.9% 4.3% 3.4% France 0.1% (1.3%) (12.6%) (5.3%) 3.2% 6.7% 4.2% 2.0% Germany (21.9%) 9.4% (2.3%) (3.8%) 3.1% 3.0% 1.5% 1.4% Italy (9.0%) (9.8%) (21.6%) (6.9%) 5.7% 11.5% 9.1% 2.8% Spain 3.6% (16.9%) (12.7%) 4.2% 4.8% 6.9% 3.2% 4.2% UK 3.1% (2.4%) 3.6% 9.8% 2.8% 0.8% 1.9% 1.9% Other 15.1% 4.3% (10.7%) (9.0%) 3.4% 5.4% 7.5% 8.3% East Europe 16.9% 23.5% 4.7% 1.0% 3.5% 7.5% 7.2% 6.7% Russia 27.9% 40.8% 10.9% (6.0%) (2.2%) 5.6% 5.3% 5.0% Asia 26.0% 1.4% 11.3% 9.4% 7.8% 8.8% 8.4% 6.4% China 32.7% 4.4% 5.9% 14.0% 8.1% 8.5% 7.8% 7.3% India 31.4% 8.1% 11.7% (11.4%) 6.9% 12.9% 8.6% 7.9% Japan 7.5% (15.4%) 27.0% (2.9%) (6.9%) (1.1%) (1.1%) (3.2%) North America 10.4% 9.3% 12.5% 7.5% 3.2% 2.6% 1.5% 1.5% USA 11.1% 10.3% 13.4% 7.9% 3.5% 2.8% 2.4% 1.5% South America 17.2% 9.6% (2.2%) 7.7% 3.5% 6.9% 5.8% 5.6% Brazil 9.3% 4.5% (0.0%) (1.8%) (1.4%) 2.9% 7.1% 4.0% Other 15.1% 3.1% (3.1%) (21.2%) 4.8% 1.2% 6.2% 8.6% Total 13.9% 4.4% 5.0% 3.4% 5.4% 6.1% 5.9% 5.1% Light vehicle sales (%) West Europe 19.6% 18.7% 16.3% 15.3% 15.1% 14.9% 14.7% 14.4% France 3.6% 3.4% 2.9% 2.6% 2.6% 2.6% 2.5% 2.5% Germany 4.2% 4.4% 4.1% 3.8% 3.8% 3.6% 3.5% 3.4% Italy 2.9% 2.5% 1.9% 1.7% 1.7% 1.8% 1.8% 1.8% Spain 1.5% 1.2% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% UK 3.1% 2.9% 2.8% 3.0% 2.9% 2.8% 2.7% 2.6% Other 4.3% 4.3% 3.6% 3.2% 3.1% 3.1% 3.2% 3.3% East Europe 5.1% 6.0% 6.0% 5.9% 5.8% 5.8% 5.9% 6.0% Russia 2.6% 3.4% 3.6% 3.3% 3.1% 3.1% 3.0% 3.0% Asia 39.3% 38.1% 40.4% 42.8% 43.8% 44.9% 45.9% 46.4% China 23.4% 23.4% 23.6% 26.0% 26.7% 27.3% 27.8% 28.4% India 3.7% 3.8% 4.1% 3.5% 3.5% 3.7% 3.8% 3.9% Japan 6.6% 5.4% 6.5% 6.1% 5.4% 5.0% 4.7% 4.3% North America 18.9% 19.8% 21.2% 22.0% 21.6% 20.9% 20.0% 19.3% USA 15.7% 16.6% 17.9% 18.7% 18.4% 17.8% 17.2% 16.6% South America 6.4% 6.8% 6.3% 6.6% 6.4% 6.5% 6.5% 6.5% Brazil 4.6% 4.6% 4.4% 4.1% 3.9% 3.7% 3.8% 3.8% Other 10.7% 10.6% 9.8% 7.4% 7.4% 7.1% 7.1% 7.3% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 24 January

14 Reference to first page of disclaimer VW pref. price chart Porsche pref price chart Distribution of ratings: Number of recommendations from Commerzbank, CM- Research, at the end of the fourth quarter (48.2%) Buy / Add 29 (61.6%) 76 (37.1%) Hold 12 (25.6%) 30 (14.7%) Sell / Reduce 6 (12.8%) thereof recommendations for issuers to which investment banking services were provided during the preceding twelve months This document has been created and published by the Corporates & Markets division of Commerzbank AG, Frankfurt/Main or Commerzbank s group companies mentioned in the document. Commerzbank Corporates & Markets is the investment banking division of Commerzbank, integrating research, debt, equities, interest rates and foreign exchange. The relevant research analyst(s), as named on the front cover of this report, certify that (a) the views expressed in this research report accurately reflect their personal views about the securities and companies mentioned in this document; and (b) no part of their compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or views expressed by them contained in this document. The research analyst(s) named on this report are not registered / qualified as research analysts with FINRA. The research analyst(s) may not be associated persons of Commerz Markets LLC and therefore may not be subject to NASD Rule 2711 and incorporated NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst. It has not been determined in advance whether and in what intervals this document will be updated. 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