Q3 23: EV wavers

VW’s Q3 23 results hardly breaking news following the group’s preliminary results and profit warning. The management did however confirm what we had heard in the statements from the peers i.e. that demand for BEV is going through a weak phase. Also, the Brand Group Core’s margin profile remained disappointing, while VW confirmed that the implementation of the €10bn cost-cutting plan is running behind schedule. Lastly, VW could reduce its sails for some time in China leaving its BEV offensive for

Preliminary Q3 23: a worrying warning?

VW slashed its FY23 operating income target to €22.5bn due to new cash adjustments affecting the P&L. However, the underlying assumptions on the operational front were reiterated. The preliminary Q3 23 figures fell short of estimates but investors may percieve them not too badly because of the negative sentiment that has weighed on the share price recently. We must trim our FY23E EBIT by c. 10%. Our fundamental positive rating remains, but we prefer Stellantis.

Q2 23: Logistics issues and local for local in China

VW’s Q2 23 results missed expectations at the cash flow level as logistics issues weighed. The FY23 guidance was confirmed but the downward adjustment to the assumption on vehicle deliveries likely factors in a strong performance for the premium brands. Also, the group now indicates that it will only be able to reach the “lower end” of its Automotive NCF range. Lastly, VW is shifting gears in China to capitalize on the local knowhow. A new strategy for China was announced.

VW needs smooth steering “à la” Porsche to keep a pole position

VW Group’s 2023 CMD was everything but a big bang, yet that was what investors needed. The ambitious cash conversion target overwhelmingly relies on the ability to lower the cost base and gradually level down the investment ratio. The CMD was an acknowledgement of the group’s weaknesses on every burning topic. We believe that VW has the right strategy, but investors’ caution is likely to remain until management proves efficient at steering this behemoth as well as a 911.

Strong Q1 23 overall; Chinese trend in the spotlight

VW Group reported Q1 23 results that beat consensus on the back of European and US volumes, while China remained a drag. The company confirmed its optimistic FY23 guidance, like peers, anticipating strong revenue growth and margin improvement on the back of easing supply-chain bottlenecks. Despite the improved profitability of its ICE portfolio, the market’s sole focus is on BEV pricing. It looks like VW Group’s best hopes for overall pricing sustainability will be the release of its premium EVs

FY22 results and outlook: Investments first

The FY22 results and guidance had already been pre-released. Ahead of the CMD in June 2024, VW Group announced a €180bn 5-year investment plan driven by electrification and digitalization, which is largely factored into our forecasts. The FY23 outlook surprised by its optimism earlier this month. The takeaways from the analyst call confirm that the bullish volume outlook is underpinned by a huge catch-up effect while margin sustainability should be supported by a positive pricing effect and a lo

The FY23 guidance sounds better than we had thought

VW’s FY23 guidance was above expectations on all fronts with the group forecasting strong volume-driven top-line growth and flat profitability, while the consensus had been expecting a modest improvement in sales and decreasing profitability. This bodes well for the attractiveness of the stock which has not been a focus for investors since the Porsche AG IPO. Also, the positive comments on volumes back our investment case of a rebound for auto suppliers. We maintain our buy rating and expect upg

Preliminary FY22: Cash stored in the parking lot

The VW group’s preliminary figures missed the net cash flow targets and expectations with soaring inventories stemming from weak supply lines and logistics. The inventory headwinds are likely to reverse in FY23 once stand-by finished products are delivered, limiting the negative reading. Furthermore, with the top line and margin broadly in line with estimates, the group’s preliminary figures appear robust compared to Ford’s miss last week.

Q3 22 a miss, but confidence intact (for Q4 at least)

VW missed expectations in Q3 22 as the operating margin fell 8% short of the consensus. The top-line was in line with the consensus but cost inflation and a one-off bill for the write-down of the Russian operations and the Porsche IPO weighed on profitability. The outlook was confirmed implying a sequential step up in profitability although the company cut its delivery expectations as supply chain issues remain. Few details were given looking into 2023 and the strategy update has been postponed,

Porsche AG or SE? The IPO toolkit

Porsche’s customers are used to choosing the finish of their 911s. With an IPO of Porsche AG profiling for the coming weeks/months, investors will have the opportunity to choose the finish of their Porsche investment: AG or SE? Buying into the IPO looks too expensive above the €75bn mark, but buying into the HoldCo, Porsche SE, would offer a discount narrowing for free as we expect the HoldCo to become a proxy investment for Porsche AG.

Porsche AG’s shares as scarce as its cars?

The lastest rumours are reassuring about Porsche AG’s IPO, likely to be maintained, and coming any time soon, backed by a strong interest from large (and certainly long-term) investors. Scarcity looks the best adjective to define the future free-floating shares of Porsche AG. This looks supportive for Porsche AG’s value over time and increasing the appeal for proxy investing through Porsche SE.

VW’s strong H1 points to the upper end of the FY22 outlook

Volkswagen reported a strong set of H1 results, with the operating margin clearly ahead of the FY22 guidance. VW brand’s profitability was impressive. FCF suffered, like the peers, from high inventory levels owing to supply chain issues. The chip shortage is seen easing from the end of Q2 22, which bodes well for H2 volumes while cost increases are expected to accelerate. VW confirmed its FY22 guidance with margins seen at the upper end of the range, calling for an upgrade to our EPS forecasts.

VW's CEO gets off at the next stop

The EV repositioning of the VW group has been one of Herbert Diess’ best achievements, but software issues seem to have got the better of him. From 1 September, Porshe AG’s CEO, Oliver Blume, will replace Mr Diess as the head of the executive board of VW Group. Software problems might have helped this but the timing ahead of a potential IPO of Porsche AG (if any) is by no means ideal. The reality of VW has taken over: the Porsche-Piech family always has the last word.

Porsche AG gets closer to its “independence”

Porsche AG’s CMD looks convincing on busines-wise but is not likely to calm investors questioning its governance. The long-term 20% EBIT target confirms consensus’ valuation range of €80-90bn, while management sees last years’ improvements on operational efficiency to have raised the margin floor to 15% (vs. 9% reached in 2009). Porsche targets the best in each world with a niche-luxury-style pricing strategy together with premium-like volumes and BEV/ICE parity within two years. The variable re

Q1 22: VW calls for caution but sticks to FY outlook

After pre-releasing some Q1 figures last month, headlined by an €8.5bn group EBIT, the full release brought more clarity on the drivers of this strong performance. Once again, the positive operating momentum in VW’s premium and luxury brands supported the upbeat profitability despite supply chain-constrained production volumes. While the outlook remains under threat, given the volatile geopolitical context in Europe and the resurgence of Covid-19 in China, the Q1 resilience has VW cautiously con

LIBERUM: Frontier Developments: Warhammer: Soft trading through key period

Frontier Developments (FDEV LN) - Expect change

Initial sales from the launch of Warhammer Age of Sigmar: Realms of Ruin have underperformed. After several disappointing new releases, the company has decided to reverse its strategy to diversify into adjacent game genres. We believe the increased focus should improve Frontier Development’s efficiency but may also increase its revenue concentration and volatility. The update and strategic change lead us to lower FY24 Adj LBITDA to £13.6m from £9.0m. We now also forecast no revenue growth over t

Strong H124 profitability and growth plan ambitions

PROGRESSIVE: IG Design Group: Strong profit growth, key strategy initiatives and quantified aspirations

IG Design Group delivered a 27% increase in adjusted PBT to $34.8m for H1 FY24 (to 30 September) with a significant reduction in net debt to $15.1m, as signposted in last month’s trading update. The adjusted operating profit margin was some 270bps higher at 8.6% (vs 5.9% in H1 FY23), the highest achieved since H1 FY20 ahead of the CSS acquisition. Management has provided more details on the key attributes and initiatives for its new growth-focused strategy. The group is on track to return to pre

Hardman & Co Research: Surface Transforms (SCE) - Funding for growth: Open Offer

In the past two years, Surface Transforms (SCE) has quadrupled its order book, raised monthly sales run rates from £0.2m to £1.0m and expanded its capacity four-fold to a £20m pa sales rate. A 3 November update pointed to production teething troubles. October sales of £1.0m were below prior estimates, so we significantly reduced our 2023 and 2024 estimates. We estimate PAT breakeven for 2H24. Initially from debt, SCE has the resources to finance capital expenditure from internal cash flow to rai

The Joy of Techs - Cavendish Technology quarterly sector note

£23.3bn in enterprise value has been returned to AIM technology shareholders over the past six years in the form of 51 public to private takeouts, including 10 in 2023 alone with the takeovers of Smoove* and Tribal announced in early October. With UK valuations appearing cheap and looking more attractive to potential acquirers, we take a moment to reflect on the trends of corporate and private equity bidders targeting AIM-listed technology companies going back to 2017, through the uncertainties

Accrol Group Holdings (ACRL LN) - Consecutive upgrades

H1 FY24 has delivered positive trading momentum with continued volume growth and an acceleration in margin recovery back to pre-pandemic levels.

Frontier Developments (FDEV LN) - Road to recovery

We are encouraged by Frontier Developments' announcement of an Organisational Review. We believe many video games companies inflated their expense bases during 2020 and 2021 and reduced focus on return on investment. Frontier now plans to reduce annual operating costs by up to 20% by the beginning of FY25. Frontier's Organisational Review returns the business' focus to optimising returns, leading us to forecast a recovery in adjusted EBIT margins to 5.3% in FY25 and 9.4% in FY26. We believe the

PROGRESSIVE: IG Design Group: H1 trading sees significant net debt reduction and profit growth despite lower sales

IG Design Group has delivered substantial growth for the H1 trading period (to 30 September) in terms of key profit measures and margins, together with strong cash flow and net debt reduction, both of which exceeded management expectations. These achievements have been attained despite lower sales compared to H1 FY23, with the adjusted operating profit margin in H1 FY24E therefore set to surpass last year’s 5.9%. As such, the overall results clearly show the ongoing benefits of the group’s strat

LIBERUM: New Energy Nuggets: Hydrogen - the future is green

SHORE CAPITAL - Portmeirion (PMP) - House Stock at 353p - Significantly undervalued

Initial Equity Trading Comments - 11 May 2023

Morning Note – 14 November 2023

LIBERUM: Ceres Power - Initiation - A Compellingly solid case

The Hardman & Co Monthly: October 2023

Feature article: Liquidity – shrinking when it’s most needed A review of liquidity in London since 2016 Summary ► Liquidity is the lifeblood of equity markets. ► Following the events at the Woodford Equity Income Fund (WEIF) in 2019, professional investors, increasingly, focus on liquidity when making investment decisions. ► However, this paper shows that liquidity declined significantly between 2016 and 2022. Our work demonstrates that, in 2016, the total value traded of trading companies lis