Porsche Automobil Holding SE has been downgraded by UBS from a "neutral" to a "sell" rating. UBS has also reduced the price target for Porsche SE from €42 to €32 per share.
The downgrade is due to revised financial models concerning Porsche's core holdings, particularly Volkswagen Group and Porsche AG. The analysts at UBS have highlighted challenges in revenue growth and profitability that are impacting Porsche's financial outlook.
Despite expectations for revenue stabilization at €39 billion for Porsche AG by 2025, the projected operating profit margins are only expected to improve marginally to 14.6%. Analysts have pointed out several key issues, including persistent execution problems, weak cost discipline, and an inadequate governance structure, all of which are seen as significant barriers to achieving better performance.
The financial outlook for Volkswagen further complicates the situation for Porsche SE. UBS has maintained a "sell" rating on Volkswagen, lowering its price target for VW's preferred shares from €84 to €75. The ongoing complex restructuring efforts in Germany, coupled with potential charges anticipated in the fourth quarter, are expected to strain dividend payments, which are crucial for Porsche SE's income stream.
Porsche SE's financial health is already under scrutiny, with a high net debt of €5.1 billion and a narrowing 30% net asset value discount that analysts deem unjustified given the prevailing headwinds. The holding company faces significant refinancing pressures starting in 2027, particularly as dividends from its key investments are expected to decline.
UBS's revised valuation of Porsche SE reflects a subdued outlook, driven by diminished growth expectations in its underlying assets and structural inefficiencies. The analysts emphasize that Porsche SE's future performance is heavily reliant on the improved performance of both Volkswagen and Porsche AG, particularly in terms of dividend generation.
The current governance structure and operational challenges within Porsche SE need urgent attention. Addressing these issues is critical for the holding company to regain investor confidence and stabilize its financial position. The ability of Porsche SE to adapt and improve its operational efficiency will be paramount in determining its future success.
The downgrade by UBS serves as a reminder of the challenges facing Porsche SE and its reliance on the performance of its key investments. The combination of reduced growth expectations, financial pressures from Volkswagen, and internal inefficiencies paints a concerning picture for the luxury automotive holding company.