Is Volkswagen a gem? | GoodfashionTrader

  • Volkswagen AG Vz. – WKN: 766403 – ISIN: DE0007664039 – Price: €133,920 (XETRA)

In the second quarter, Volkswagen earned less than in the same quarter last year due to the problems with semiconductors and the China lockdown, but these are temporary effects.

In the first half of the year as a whole, the Volkswagen Group’s deliveries fell by 22.2%, but sales rose slightly and profits even rose significantly compared to the same period the previous year. Sales grew by 2.0% to 132.3 billion euros, operating profit by 12.9% to 12.8 billion euros and profit after tax by a whopping 25.8% to 10.6 billion euros. The numbers were consistently above analysts’ expectations.

At group level, Volkswagen sold fewer cars in the first half of the year, but increased the operating margin from 8.8 percent to 10.6 percent, partly due to proportionally higher sales in the premium segment. At the same time, Volkswagen “has made important strategic progress and decisively advanced the development of its battery, mobility services and software platforms,” ​​said CFO Arno Antlitz. The IPO of sports car subsidiary Porsche could flush more funds into the company’s pocket to drive the transformation forward. For the year as a whole, the Volkswagen Group is still aiming for an increase in sales of 8 to 13% and an operating margin of 7.0 to 8.5%.

From a fundamental standpoint, Volkswagen shares are currently valued at dirt cheap, as the table below shows. The price-to-earnings (P/E) ratio is just 4, and the dividend yield based on the expected dividend for 2022 is over 6%.

Year 2021 2022e* 2023e*
Sales in billions of euros 250.20 271.46 284.74
Earnings per share in EUR 29.59 33:18 32.90
P/E 5 4 4
Dividend per share in EUR 4.86 8.44 8.49
yield percentage 3.63% 6.31% 6.35%
*e = expected

Volkswagen is now also attractive from a cash flow perspective. For a long time the group had negative free cash flow, meaning it spent more money than it raised. Meanwhile, Volkswagen is generating positive free cash flow, such as the redesigned and significantly expanded range of features Fundamentalcharts widget points to guides.

Despite the expensive future investments, Volkswagen is likely to remain cash-positive for years to come. The analysts expect Volkswagen to have nearly EUR 11 billion in free cash flow this year, more than EUR 12 billion in 2023 and 2024, and nearly EUR 14 billion in 2025, with a market capitalization of EUR 81 billion and an enterprise value of around EUR 231 billion served. While not a cheap valuation on a cash basis, free cash flow is likely to increase significantly once key future investments are made and start pouring money into Volkswagen’s coffers.

With a PER of less than 4, Volkswagen is currently assessed as if the group had no great future ahead of it. There is also talk of “legacy car manufacturers”. What is meant by this are the dinosaurs among the car manufacturers, who will no longer play a significant role in the new world of mobility, while Tesla and a few other companies will satisfy the mobility needs of the masses. In light of the fact that Volkswagen may sell more electric cars than Tesla in a few years, this view of things is unlikely to be true. I think Volkswagen’s preferred stock is undervalued and underinvested. However, one should not expect rapid price gains from the paper in light of the still intact downward trend.

Volkswagen preferred stock
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Disclosure of potential conflicts of interest: The author is invested in the following securities or underlying securities discussed at the time of publication of this commentary: Volkswagen AG Vz. (long)

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