Morningstar | Volkswagen Says Traton IPO Expected by August: Maintaining EUR 235 Fair Value Estimate
No-moat-rated Volkswagen, maker of Audi, Bugatti, Lamborghini, Porsche, SEAT, Skoda, and Volkswagen automobiles, plus MAN, Scania, and Volkswagen commercial trucks, announced that it plans an initial public offering of its Traton SE group by summer break (August). The Traton group includes MAN and Scania commercial truck and bus operations. The company originally announced the formation of the group in August 2018, following up with a press release in September 2018 announcing a potential IPO. In March 2019, the company said that it was putting preparation of a Traton IPO on hold until "market conditions improve." Management intends for Volkswagen to retain majority ownership of Traton. Media speculation has the IPO stake at 25%. We estimate that a 25% IPO of Traton's equity value, may result in proceeds for Volkswagen between EUR 2.4 billion and EUR 4.7 billion.Even so, at this point, we do not have enough financial disclosure to make any changes to our fair value estimate. While its possible that Volkswagen may use the proceeds to bolster its balance sheet, the company will need additional funds to invest in its plans to launch electric vehicle battery cell production in Europe, support higher spending to launch several new electric vehicle models, plus diesel scandal litigation risks still exist. Be that as it may, 4-star-rated Volkswagen shares currently trade at a 37% discount to our EUR 235 fair value estimate, which already includes a EUR 20 billion haircut to our enterprise value for diesel scandal-related issues.
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