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Despite Commercial Success, VW Share Price Still Cheap

Shareholders Fear They Lag Behind Family Interest

Volkswagen had a great year in 2009, particularly if you consider the fate of some of its main competitors, but its share price still languishes.

Despite sales and profit success in 2009 while the competition was faltering – GM and Chrysler went bankrupt, Toyota made unprecedented losses – VW’s share price remains cheap, according to the Financial Times Lex column, because its shareholders fear the current management regime is too concerned with family interests.

“VW is emerging from the financial crisis as arguably the world’s best positioned carmaker. Yet at an enterprise value of only one-fifth of forecast 2010 sales, it is also one of the cheapest. A big reason is its poor corporate governance record, and justifiable concerns that the complex, VW-led merger now under way with Porsche unfairly favours Porsche’s two controlling families – whose members include Ferdinand Piech, VW chairman. Those concerns are weighing too heavily on the valuation,” Lex said.

Bernstein Research analyst Max Warburton believes VW will have a harder time in 2010.

“Earnings upgrades for VW will be tough to deliver as the company was flattered by its geographical exposure in 2009, with strong positions in the incentive driven German market, the fiscally stimulated Chinese market and the fundamentally strong and very profitable Brazilian market. In 2010, we expect a significant fall in German volumes and limited Chinese and Brazilian growth,” Warburton said.

Lex though is convinced VW is still poised for success.

“Consider VW’s attractions; a reputation for quality and technology giving it pricing power, a successful multi-band strategy, soon to include Porsche, and real merging market strength, especially in China. Climb in and fasten your safety belt,” Lex said.

The Porsche acquisition and the purchase of a 20 per cent stake in Suzuki looks to be the last strategic move for some time

VW CEO Martin Winterkorn put it this way.

“We are satisfied with the current line-up. I don’t see any need (for further M&A activity),” he was quoted as saying by German magazine WirtschaftsWoche.


Neil Winton – January 15, 2010

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