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Audi shares - the pearl in the VW Group
Wednesday 13 January 2016
Once again, 2015 has shown the superior quality of the AUDI Group. VW should use this period of 'making a clean sweep' to stress the
importance of Audi shares. VW should use this opportnity to improve its corporate image by tackling the problem of AUDI equity notes
and its handling of minority shareholders in AUDI.
On Saturday there was a headline in the newspaper: "VW loses - but Audi did not suffer losses" This refers to the final account for the fiscal year 2015. The deliveries worldwide for the core VW brand went down in 2015 by 4.8%. Due to the exhaust emission scandal, sales of the core VW brand in the US shrunk by 4.8% to nearly 350,000 vehicles. But now for the most remarkable part shown in the "small print": Just there, in the United States, Audi was able to increase the volume of sales by 11% to 202,000 cars. Audi celebrated successes in 2015 not only in the United States of America but worldwide as well. Audi increased sales by 3.6% to a record level of 1.8 million vehicles. The people from Ingolstadt never sold so many cars in spite of the Diesel scandal.
We feel justified in our commitment to AUDI holdings in our Value Fund "ME Fund - Special Values". We kept our holding in the stock for years as a "specialty".
At the AGM in 2015, we represented the largest stake holders among the remaining free minority shareholders. VW holds 99.5% shares of AUDI. The free float of 0.5% totals around 140 million euros.
To date, there is no explanation why the VW Group carries on with such a small free float of stock and its listing, which involves an extremely costly undertaking with AGM's, reporting, investor relations managers etc..
I repeatedly pointed out the substantial undervaluation in 2015 of the Audi shares. Please check my blog posts of the 27th May 2015
"Audi share - undervalued?" And of the 28th May 2015 "Audi share - hidden treasures" and my commentary in the Wall Street Online issue of the 22nd October 2015 "Audi and VW share -Crisis. The chance for a settlement ". Nothing in these statements has changed . Allow me to repeat here again, the main assets of AUDI AG:
- The car brand AUDI
- The car brand Lamborghini
- The motorcycle brand Ducati
- An 8.33% stake in the football club FC Bayern München
- A cash surplus in billions of euro
All this supports Audi shares. At the current price of about 670, - Euro per share the entire Audi Group is only valued at around 28.8 billion euro.
In comparison, BMW has a market capitalisation of 55 billion euros. The Lamborghini brand by itself was once compared to the Ferrari brand.
Since then Ferrari shares have gone public and are listed on the stock exchanges in Milan and New York. Despite a poor financial environment Ferrari is now valued at 7.5 billion euros.
It would be great to have a new vision for the new VW-AUDI combination. As for legal niceties regarding profits for minority shareholders, this is no longer appropriate. There is more to this. From my perspective, VW has two solutions to enhance the value of their holding:
- The complete incorporation of AUDI in the VW Group. AUDI would then, be treated as a division like SEAT or Skoda. The Listing would be adjusted. AUDI shareholders would accept a fair market valuation. In this way VW would save considerable resources as well as time every year and set an example of good "corporate governance".
- AUDI will act as the "financial adviser" in the US damage crisis. VW decides to resurrect AUDI from it's slumber. AUDI is a DAX company. VW retains management control with some 30% to 40% or more shares, floating the remaining 60% to 70% of AUDI shares on the stock exchange. The VW group would thus generate, from my rough calculation about 30 billion to 40 billion euros. Here I assume a similar valuation as currently given to the BMW shares.
2016 will be an exciting year. The VW theme and its relationship with Audi will provide gains in time. In "ME Fund - Special Values" We stay on the ball.
PS: Important: The current listed AUDI shares are very illiquid. On some days just a few shares are traded . This should be kept in mind by investors. This is a stock for professional investors who are used to dealing with illiquid securities.