Volkswagen AG Consumer Discretionary VW

Applied Portfolio Management
VW
Analysts: Pascal Laucht, David-John Tiemens
Volkswagen AG
BUY
Consumer Discretionary
Sector:
Report Date:
Market Cap (mm)
Return on Capital
EPS (ttm)
Current Price
12-mo. Target Price
$84,537
11.4%
$46.45
$180.80
$0.00
Annual Dividend
Dividend Yield
Price/Earnings (ttm)
Economic Value-Added (ttm)
Free Cash Flow Margin
$3.50
1.9%
3.9
$3,656
-3.1%
Business Description
Volkswagen AG, together with its subsidiaries, engages in the
manufacture and sale of automobiles worldwide. The company operates
in four segments: Passenger Cars and Light Commercial Vehicles; Trucks
and Buses; Power Engineering; and Financial Services. The Passenger Cars
and Light Commercial Vehicles segment is involved in the development of
vehicles and engines; and production and sale of passenger cars and light
commercial vehicles, and genuine parts. This segment also offers
motorcycles. The Trucks and Buses segment engages in the development,
production, and sale of trucks and buses, as well as genuine parts and
services. The Power Engineering segment is involved in the development
2-Yr Beta (S&P 500 Index)
Annualized Alpha
Institutional Ownership
Short Interest (% of Shares)
Days to Cover Short
VW
5/6/2013
Compared With:
General Motors Company
Toyota Motor Corporation
and the S&P 500 Index
GM
Toyota
60%
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
Investment Thesis
With our portfolio underweighted in Industrials, we studied VW’s ability to create
value for the student investment fund via growth that beats the S&P while
maintaining a -0.26 Beta vs. the S&P 500. VW impressed us with its solid
performance throughout the recession and growth thereafter. The company’s
high degree of integrity/transparency as it pursues its Strategy 2018 — which
states its desire to be the world’s largest automotive manufacturer by 2018 —
bodes well for future gains in revenues, profits and stock price appreciation.
VWn’s 3-CAGR shows EBIT growth of 187.4%, NOPAT growth of 204.3%, EPS
growth of 169.1%, and EVA growth of 104.2%. With these strong numbers, and
noting the company’s past success as it pursues its “Strategy 2018” objective, we
became convinced the company’s stock undervaluation presented the Student
Investment Fund with a unique opportunity. VW, a German based company,
diversifies our portfolio internationally.
-0.26
7.0%
16.4%
0.0%
0.0
VW
^SPX
50%
40%
30%
20%
10%
0%
-10%
-20%
ROA
ROE
ROIC
30%
25%
ANNUALIZED 3-YEAR CAGR
20%
Total Revenue
EBIT
NOPAT
Earnings Per Share
Dividends Per Share
22.4%
187.4%
204.3%
169.1%
29.8%
Margins and Yields
2008
Operating Margin
Free Cash Flow Margin
Earnings Yield
Dividend Yield
4.2%
-5.6%
3.3%
0.5%
Per Share Metrics
2008
Earnings
Dividends
NOPAT
Free Cash Flow
11.94
1.93
8.59
(18.57)
Free Cash Flow
Total Invested Capital
Total Assets
Economic Value-Added
Market Value-Added
2009
0.5%
4.6%
2.4%
1.6%
2009
2.38
1.60
0.91
(9.49)
Economic Value-Added
2010
5.9%
3.2%
11.2%
1.6%
2010
15.19
2.20
12.02
8.70
-9.6%
13.2%
20.5%
-195.2%
12.4%
2011
6.2%
-3.1%
25.7%
1.9%
2011
2012
33.12
3.00
20.25
(8.47)
46.45
3.50
22.09
(6.04)
$100,000
$80,000
$60,000
$40,000
$20,000
$0
Datasource: Capital IQ
2009
5%
0%
2007
2010
2011
2012
2008
2009
EBIT
2010
2011
2012
Net Operating Profit After Tax
$14,000
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$0
2007
Market Valued-Added
$120,000
2008
10%
2012
7.1%
-0.8%
22.4%
2.0%
$5,000
$4,000
$3,000
$2,000
$1,000
$0
-$1,000
-$2,000
-$3,000
-$4,000
-$5,000
2007
15%
2008
2009
Price/Earnings
2010
2011
2012
Price/Free Cash Flow
45
40
35
30
25
20
15
10
5
0
2007
2008
2009
2010
2011
2012
Please note that the company analyzed in this report is accurately named “The Volkswagen
Group.” However, the company is often described as, and/or is simply labeled “Volkswagen,”
“VW,” or “The Group.” These abbreviations for “The Volkswagen Group” will henceforth be
used interchangeably to describe the company.
Investment Thesis:





With our portfolio underweighted in Industrials, as analysts previously studying the automotive
industry, we became enticed as we studied VW’s ability to create value for the student
investment fund via growth that beats the S&P while maintaining a -0.26 Beta vs. the S&P 500
Looking deeper at the major players in the automotive industry, Volkswagen impressed us with
its solid performance throughout the recession and growth thereafter
The company’s high degree of integrity/transparency as it pursues its Strategy 2018 — which
states its desire to be the world’s largest automotive manufacturer by 2018 — bodes well for
future gains in revenues, profits and stock price appreciation
Volkswagen’s 3 year-CAGR shows EBIT growth of 187.4%, NOPAT growth of 204.3%, EPS growth
of 169.1%, and EVA growth of 104.2%. With these strong numbers, and noting the company’s
past success as it pursues its “Strategy 2018” objective, we became convinced the company’s
stock undervaluation presented the Student Investment Fund with a unique opportunity
Volkswagen, a German based company, diversifies our portfolio internationally
Highlights:




VW has a low Beta of -0.26, strong EVA growth of 104.2%, and a low P/E of 3.09
Calculating Intrinsic Value using conservative assumptions, we find that the company is
significantly undervalued by as much as 43.6% in 2012
The company is committed to growth and value creation, having publically instituted its “2018
Strategy,” which dictates the company to have unit sales of greater than 10 million and
operating margins of 8%. To date VW is manufacturing 9.2 million units and has a operating
margin slightly higher than 6%, so they remain on pace to meet all of the 2018 Strategy goals
VW’s ability to move into growth markets when opportunities arise (Asia in particular) even
during a recession, and the company's ability to maintain stable profit margins, have steadily
improved VW’s position in the market
Macroeconomic Analysis of the Automotive Industry:
The Automobile industry is slowly pulling itself out of the past recession, although overall industry
growth remains sluggish. The future of the industry is forecasted to grow at a slow yet stable pace.
Generally speaking, the automotive industry is cyclical, and though we are forecasting a relatively slow
recovery, we expect it to not only reach pre-recession levels, but see further growth into the future. It is
important to note however, that Volkswagen has already grown past its pre-recession numbers.
More importantly to us with respect to VW, we note the company has not only seen strong postrecession growth as it implements its Strategy 2018 directive (3 year revenue growth rate of 22%), it has
taken market share from those other automotive companies that have had to see considerable
contraction in light of the recessions negative impacts on those companies.
International Diversification:
VW is a German based company that has traditionally had a large presence in the Euro-Zone (which for
our purposes includes Russia). With the Euro-Zone’s macroeconomic woes for the past six years (which
include its automotive industry), many investors have been wary of the stock which has been reflected
in the company’s low P/E ratio and its low MVA.
However, the “story that is Volkswagen,” as already stated, is how the company has continued to grow
and generate profits in spite of this reality. This has not only transpired due to strong industry
fundamentals, much of this also comes as the end of the company’s incredible ability to position itself in
growth markets while trimming those segments with slow growth. This transformation of their revenue
diversification is displayed by the below figures showing The Group's portfolio movement outside of the
European market and into growth markets such as Asia and Oceana.
International Diversification continued:
Geographic Segments 2008 - 2012
You will note these graphs (provided by S&P's Capital IQ) depict a company that since 2008 has
decreased its entire European dependence by 12.9% while still being able to generate an increase of
approximately 42.288 billion USD in revenue.
This decrease in European dependence has been transferred to an increase in emerging markets mainly
the Asia/Oceania segment. This segment has seen a 10.2% increase with a revenue increase of
approximately 33,128 billion USD in revenue.
“Strategy 2018:”
A large part of understanding The Volkswagen Group's future value involves understanding its
commitment and the transparency that comes from its “Strategy 2018” vision statement. This strategy
states that the company intends to become the world’s most successful automaker by 2018.
This vision consists of four major initiatives (as taken from The VW’s 10-K):




Volkswagen intends to deploy intelligent innovations and technologies to become a world
leader in customer satisfaction and quality.
The goal is to increase unit sales to more than 10 million vehicles per year; in particular,
Volkswagen intends to capture an above-average share of the development of the major growth
markets.
Volkswagen intends to increase its return on sales before tax to at least 8% so as to ensure that
the Group’s solid financial position and ability to act are guaranteed even in difficult market
periods.
Volkswagen aims to become the top employer across all brands, companies and regions, which
will allow the company to build a first-class team.
Continued on next page.
“Strategy 2018” continued:
To date, each of these matrixes has been positively impacted:
Measures
2008
2012
Customer Satisfaction Levels (base of 10)
8.32
8.67
Units Sales in Millions
5.80
9.30
Profit before Tax Margin
5.8%
13.2%
Employee approval rating
84%
90%
Financial Analysis:
Total Revenue and Net Income (measured in 1000’s)
The past six years show a clear upward
trend in VW’s Total Revenue and Net
Income. 2009 saw these figures dip due to
the recession, though unit sales remained
consistent. By 2010 VW managed to
maintain growth and began its rebound.
Overall VW increased their Total Revenue
over the past six years significantly and
more than doubled their Net Income. This
sends a strong signal that VW is a growth
oriented and efficiency focused company. Net Income is growing faster than Total Revenue, which
means that VW’s operations become more efficient.
Earnings Yield and Dividend Yield
Earnings Yield increased from
approximately 6% in 2007 to over 25% in
2012. This shows that VW’s Stock price is
not keeping up with its earnings per share.
Currently, Earnings yield is ten times
higher than Dividend yield, which means
that VW, earns a lot more than it spends
on Dividend. These are earnings that VW
mainly uses to finance its “Strategy 2018.”
VW has managed to maintain a sold
Dividend yield, even throughout the recession year 2009, which is unique within the industry. At
present, the largest percentage of VW’s earnings is currently being used to finance its “2018
Strategy.”
P/E and P/FCF ratio
Historically VW has maintained a “high”
Price/Earnings
Price/Free Cash Flow
P/E ratio which realized a significant
45
decline post 2009 initially due to the
40
recession. Currently the P/E has settled
35
30
at 3.09. This is extremely low and
25
refelects the undervaluation of the Stock
20
15
price as compard to its EPS. Moreover,
10
VW’s comitment to making investments
5
0
in PPE as per “Strategy 2018,” has caused
2007
2008
2009
2010
2011
2012
Total Invested Capital (TIC) to grow
faster than NOPAT which would find us
expecting a negative Free Cash Flow. This condition is only temporary however as we expect TIC to
ease as goals are realized and alow NOPAT to grow with less PPE investments.
Return on Asset, Return on Equity and Return on Invested Capital
ROA, ROE, and ROIC have all showed
positive growth over the past six years,
with the exception of the recession year
2009. Nevertheless, by 2010 VW had
already recovered and improved on
these figures and by 2011, increased
these ratios well beyond their 2008
figures. Of note, ROIC has been very
consistent, which indicates the low P/E,
as shown in the last graph, is unjustified.
ROA
ROE
ROIC
30%
25%
20%
15%
10%
5%
0%
2007
2008
2009
2010
2011
2012
Economic Value-Added and Market Value-Added
The sum of total Volkswagen EVA
growth over the past six years has been
impressive even in spite of 2009’s
recessionary effects. However,
Volkswagen’s MVA has never recovered
from its 2009 recessionary decline.
Thus, VW’s economic profit is still unpriced in the market, indicating a pent
up MVA that has nowhere to go but, in
our opinion up, with Volkswagen’s
profitable and sustainable growth.
Modeling Assumptions:
Weighted Average Cost of Capital
VW has a current WACC of 7.9%. This
figure should be considered extremely
“conservative” (or inflated) as it has
been calculated using a beta rounded to
0.95 though in actuality VW’s current 5year Beta is -0.26. This only adds to our
conviction that the value of the stock is
being unrealized by the market as a
lower beta would considerably lower
WACC and therefore it’s
undervaluation.
Comparing ROIC to WACC
Currently, VW has a ROIC of 11.4% which gives us a spread of 3.5% over our conservative WACC. Having
calculated the WACC very conservatively and expecting ROIC to increase, indicates that we can expect
an even higher spread for the future.
Income Statement Forecast
Upon forecasting the Income Statement, we took an extremely conservative position on future growth
expectations. We decreased Revenue growth by a staggering 15.4%. You will note however, with these
figures influencing our intrinsic value model, even with our conservatism, that the stock is still largely
undervalues.
With respect to operating margin; though strategy 2018 mandates an 8% operating margin by 2018, we
are staying consistent to our conservative nature and only forecasting in the 5-6% range, with a 5.5%
perpetuity growth rate.
This of course lowering our Operating Margins sees us to lowering our Net Margin for accuracy’s sake by
approximately 0.5 - 1% under our projected Operating Margins.
Staying conservative with respect to forecasting our Income Statement, we manually overrode the 3.5%
average per stock growth to a conservative 1.5% growth and forecasted a slow dividend growth as
well.
Dividend Discount Model:
In order to calculate the VW’s intrinsic value as of the Dividend Discount Model, we used our forecasts
for Dividend growth from the previous forecasted Income Statement. We also used the same alternative
Beta from our WACC assumptions. With all these assumptions, we receive an intrinsic value of $92.34
for VW, as of the Dividend Discount Model, which represents half of our current stock price. Since we
expect to gain returns mainly from growth in our Stock price, the DDM gives us a nice back up and is also
counting for half of our current stock price.
Intrinsic Value as of the FCFs Valuation Model:
For the intrinsic value as of the FCFs valuation model, we used the same estimations as in the
forecasting before. Before the recession VW’s stock price was constantly overvalued. During the
recession the stock price decreased significantly. Since 2009, the stock price has started to recover but
not like the VW’s sales and profits have. For that reason VW’s stock price is highly undervalued
currently, and the forecasted intrinsic values for the future are even growing.
Other Analyst Recommendations:
According to the world-wide data gathering company Reuters, one will note that Volkswagen has strong
Buy, Outperform, and Hold positions with no Underperform or sell positions.
This sentiment seems prevalent with analysts only adding to the conviction that Volkswagen is
undervalued.
Recommendation/Summary:
From the Intrinsic value estimates we can see
that VW’s current stock price is undervalued in
every category, except the dividend discount
model (we expect no value(s) for Price to Future
Cash Flows as described previously). VW has a
very low dividend yield of slightly less than 2%,
which does not even cover the risk-free rate, but
the intrinsic value of the dividend discount model
is still accounting for a large portion of the stock.
This again, shows that VW is undervalued.
Ultimately we believe Volkswagen stock is grossly undervalued even when we forecast with reduced
growth rates of 15.4% over 2012 figures, and increase the beta from -0.26 to .0.95. We believe that this
is in large part due to the fear of investing in an automotive stock based out of the “Euro-Zone.”
Though these concerns are not to be taken lightly, upon investigation, conservative analysis, neither of
the authors can substantiate these concerns knowing of Volkswagen’s incredible past performance and
ability to historically combat what has proven to be, catastrophic recessions to others in the industry.
Moreover, bolstered by the knowledge that Volkswagen is actively becoming an even more world-wide
diversified company as we write this, only bolster our position more-so.
We are also encouraged noting that as Volkswagen moves ahead, it will ultimately be reducing its
current rate of investment in capital which has been necessary to reach the growth rates set out by its
2018 Strategy; as these growth rates in terms of unit sales have nearly been reached already in 2012.
Thus, we expect that ROIC will begin to realize gains unseen to date. Moreover, VW’s luxury auto’s
which produce the company’s largest profits have also seen an incredible resurgence as evidenced by
Porsche’s unit sales increases since 2009 (approximate unit growth of 1400 units in 2009 to over 3800 in
2012), which will all lead to the company’s stock realizing gains as the market reacts to these figures.
Therefore we recommend a buy position on The Volkswagen Groups stock with an eye on what we
believe will be its inevitable long-term growth.
Investment Thesis:





With our portfolio underweighted in Industrials, as analysts previously studying the automotive
industry, we became enticed as we studied VW’s ability to possibly create value for the portfolio
via growth that beats the S&P and still maintain a -0.26 Beta vs. the S&P 500
Looking deeper at the major players in the automotive industry, Volkswagen impressed us with
its solid performance throughout the recession and growth thereafter
The company’s high degree of integrity/transparency as it pursues its Strategy 2018 — which
states its desire to be the world’s largest automotive manufacturer by 2018 — bodes well for
future gains in revenues, profits and stock price appreciation
Volkswagen’s 3-CAGR shows EBIT growth of 187.4%, NOPAT growth of 204.3%, EPS growth of
169.1%, and EVA growth of 104.2%. With these strong numbers, and noting the company’s past
success as it pursues its “Strategy 2018” objective, we became convinced the company’s stock
undervaluation presented the Student Investment Fund with a unique opportunity
Volkswagen, a German based company, diversifies our portfolio internationally
VW
2007
Total Revenue
Gross Profit
Operating Income
Net Income
Retained Earnings
Total Common Shares
Total Diluted Shares
Earnings Per Share
Dividends Per Share
108,897
16,399
6,257
4,120
27,166
394
398
$10.45
$1.80
2007
Cash and Equivalents
Total Receivables
Inventory
Total Current Assets
Net PPE
Total Assets
Payables and Accruals
Total Current Liabilities
Total Debt
Total Equity
9,135
8,902
14,031
68,516
25,689
145,357
10,561
56,068
3,645
31,938
Volkswagen AG
Sector
Historical Income Statement Highlights
2008
2009
2010
2011
113,808
16,250
4,819
4,753
31,522
398
400
$11.94
$1.93
105,187
13,155
507
960
31,607
403
403
$2.38
$1.60
126,875
21,347
7,479
6,835
37,684
450
450
$15.19
$2.20
192,676
33,385
12,030
21,717
71,172
468
468
$46.45
$3.50
2011
2012
14,464
17,630
27,551
105,640
43,925
253,769
26,519
101,237
7,661
63,354
15,462
18,460
28,674
113,061
53,831
309,644
26,226
105,513
15,069
81,825
Historical Balance Sheet Highlights
2008
2009
2010
7,664
14,039
17,816
76,163
30,030
167,919
11,541
64,802
2,240
37,388
18,658
10,871
14,124
77,776
31,745
177,178
13,204
69,534
9,272
37,430
17,419
13,049
17,631
85,936
34,550
199,393
18,962
76,899
8,989
48,712
2012
159,337
27,106
11,287
15,409
51,764
465
465
$33.12
$3.00
Total Revenue
Consumer Discretionary
2013E
203,273
31,690
10,164
8,131
77,409
475
475
$17.13
$3.99
2013E
14,229
21,791
30,552
135,614
56,633
322,439
27,602
122,758
12,398
76,861
Report Date
Forecasted Income Statement Highlights
2014E
2015E
2016E
213,437
33,274
10,672
8,537
83,813
482
482
$17.72
$4.43
223,041
34,772
12,267
8,922
90,396
489
489
$18.25
$4.78
231,963
36,162
13,918
11,598
99,502
496
496
$23.37
$5.02
12,267
23,910
33,524
148,802
62,141
353,796
30,286
134,696
13,604
84,336
2017E
11,598
24,867
34,865
154,754
64,627
367,948
31,498
140,084
14,148
87,709
9,510
25,489
35,736
158,623
66,242
377,146
32,285
143,586
14,502
89,902
Net Income
Earnings Per Share
$250,000
$25,000
$50.00
$200,000
$20,000
$40.00
$150,000
$15,000
$30.00
$100,000
$10,000
$20.00
$50,000
$5,000
$10.00
$0
$0
$0.00
Total Current Assets
$180,000
$160,000
$140,000
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
$0
VW-Performance-Analysis. Datasource: CapitalIQ
Cash and Equivalents
Total Assets
2017E
237,762
37,067
13,077
11,888
108,810
504
504
$23.60
$5.12
Forecasted Balance Sheet Highlights
2014E
2015E
2016E
12,806
22,881
32,080
142,394
59,465
338,561
28,982
128,896
13,018
80,704
Total Equity
Net PPE
100,000
$400,000
$350,000
$300,000
$250,000
$200,000
$150,000
$100,000
$50,000
$0
80,000
60,000
40,000
20,000
0
Financial Analysis & Valuation, Page 1 of 5
2007
5/6/2013
Dividends Per Share
Total Debt
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
Analysts: Pascal Laucht, David-John Tiemens
Margins
2007
Gross Profit Margin
Operating Profit Margin
Net Profit Margin
Free Cash Flow Margin
15.1%
5.7%
3.8%
6.3%
Gross Profit Margin
2008
14.3%
4.2%
4.2%
0.0%
2009
2010
12.5%
0.5%
0.9%
0.0%
2011
16.8%
5.9%
5.4%
3.1%
17.0%
7.1%
9.7%
0.0%
Operating Profit Margin
2012
2013E
17.3%
6.2%
11.3%
0.0%
Net Profit Margin
20%
2014E
15.6%
5.0%
4.0%
1.6%
2015E
15.6%
5.0%
4.0%
3.1%
15.6%
5.5%
4.0%
3.2%
2016E
2017E
15.6%
6.0%
5.0%
3.9%
15.6%
5.5%
5.0%
4.6%
Free Cash Flow Margin
12%
10%
15%
8%
10%
6%
4%
5%
2%
0%
0%
Liquidity and Debt
Days Sales Outstanding
Inventory Turnover
Total Debt to Equity
Total Debt to Assets
2007
29.84
7.76
11.4%
2.5%
2008
45.03
6.39
6.0%
1.3%
Days Sales Outstanding
2009
2010
37.72
7.45
24.8%
5.2%
40
30
20
10
0
2007
0.75
4.55
2.8%
12.9%
8.4%
2008
0.68
4.49
2.8%
12.7%
5.9%
Total Asset Turnover
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0
VW-Performance-Analysis. Datasource: CapitalIQ
2012
34.97
6.72
18.4%
4.9%
2013E
39.13
6.65
16.1%
3.8%
Total Debt to Equity
9
8
7
6
5
4
3
2
1
0
Profitability
40.39
5.78
12.1%
3.0%
Inventory Turnover
50
Total Asset Turnover
Equity Multiplier
Return on Assets
Return on Equity
Return on Capital
2011
37.54
7.20
18.5%
4.5%
2009
2015E
39.13
6.65
16.1%
3.8%
39.13
6.65
16.1%
3.8%
2016E
2017E
39.13
6.65
16.1%
3.8%
Total Debt to Assets
25%
20%
15%
10%
5%
0%
2011
0.64
4.09
3.4%
14.0%
8.5%
0.63
4.01
6.1%
24.3%
12.2%
Equity Multiplier
2012
0.62
3.78
7.0%
26.5%
11.4%
2013E
0.63
4.20
2.5%
10.6%
9.1%
Return on Equity
2014E
2015E
0.63
4.20
2.5%
10.6%
9.3%
0.63
4.20
2.5%
10.6%
10.4%
2016E
2017E
0.63
4.20
3.2%
13.2%
11.4%
Return on Assets
30%
30%
4.00
25%
25%
20%
20%
15%
15%
10%
10%
1.00
5%
5%
0.00
0%
0%
2.00
Financial Analysis & Valuation, Page 2 of 5
0.63
4.20
3.2%
13.2%
10.7%
Return on Equity
5.00
3.00
39.13
6.65
16.1%
3.8%
30%
2010
0.59
4.73
0.5%
2.6%
0.6%
2014E
Return on Capital
Analysts: Pascal Laucht, David-John Tiemens
Capital, NOPAT & FCF
NOWC
Net Fixed Assets
Total Invested Capital
Effective Tax Rate
NOPAT
Free Cash Flow
NOPAT Per Share
FCF/Share
Return on Capital
2007
21,507
25,689
47,196
37.0%
3,942
N/A
10.00
N/A
8.4%
Total Invested Capital
2008
27,978
30,030
58,008
29.1%
3,419
-7,393
8.59
-18.57
5.9%
2009
30,449
31,745
62,194
27.7%
367
-3,819
0.91
-9.49
0.6%
2010
29,137
34,550
63,687
27.7%
5,407
3,914
12.02
8.70
8.5%
2011
33,126
43,925
77,051
16.5%
9,423
-3,941
20.25
-8.47
12.2%
Net Fixed Assets
2012
36,370
53,831
90,201
14.2%
10,327
-2,823
22.09
-6.04
11.4%
2013E
NOPAT
$120,000
$15,000
$100,000
$10,000
$80,000
2014E
2015E
2016E
Economic Value-Added
Free Cash Flow
$2,000
$0
-$2,000
$20,000
($5,000)
-$4,000
$0
($10,000)
-$6,000
Intrinsic Value of FCFs Valuation Model
Value Creation
2007
Economic Value-Added
Market Valued-Added
PV of Future FCFs
Value of Non-Oper. Assets
Total Intrinsic Firm Value
Intrinsic Value of Equity
Per Share Intrinsic Value
Year-End Stock Price
Over (Under) Valuation/Sh
% Over (Under) Valued
Cost of Capital
Equity Capitalization
Total Debt
Preferred Stock
Value of All Securities
Effective Tax Rate
Risk-Free Rate
5-Yr Beta
Market Risk Premium
CAPM Cost of Equity
2008
201
81,927
114,879
9,135
124,014
120,369
$305.24
$288.75
($16.49)
-5.7%
-1,179
105,626
131,377
7,664
139,041
136,801
$343.64
$359.25
$15.61
4.3%
2012
84,537
Weight
84.9%
2009
2010
2011
2012
-4,563
2,791
145,610
18,658
164,268
154,996
$384.97
$99.90
($285.07)
-285.4%
360
12,254
153,236
17,419
170,655
161,666
$359.31
$135.50
($223.81)
-165.2%
3,316
5,544
169,322
14,464
183,786
176,125
$378.59
$148.10
($230.49)
-155.6%
3,178
2,712
185,565
15,462
201,027
185,958
$397.71
$180.80
($216.91)
-120.0%
% Cost
Wgt Cost
8.7%
7.3%
15,069
15.1%
4.5%
0
0.0%
0.0%
99,606
100.0%
14.2%
Long-Term Growth Rate:
2.00%
3.0%
0.76
Alternative Beta:
7.0%
0.95
8.7%
Weighted Average Cost of Capital:
VW-Performance-Analysis. Datasource: CapitalIQ
0.6%
0.0%
$160,000
$140,000
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
$0
$4,000
$0
$40,000
Market Valued-Added
$6,000
$5,000
$60,000
2017E
38,971
38,785
39,415
39,832
38,450
56,633
59,465
62,141
64,627
66,242
95,604
98,250
101,556
104,459
104,692
(Tax rate from last historical year used in forecasts)
8,725
9,161
10,531
11,948
11,226
3,322
6,516
7,225
9,046
10,992
18.38
19.02
21.54
24.08
22.29
7.00
13.53
14.78
18.23
21.82
9.1%
9.3%
10.4%
11.4%
10.7%
2013E
2014E
2015E
2016E
2017E
1,148
121,920
196,951
14,229
211,180
198,781
$418.85
1,374
125,129
206,045
12,806
218,851
205,833
$427.30
2,482
129,478
215,151
12,267
227,418
213,814
$437.31
3,669
132,898
223,158
11,598
234,756
220,607
$444.54
2,928
134,959
229,852
9,510
239,363
224,861
$446.41
Year-End Stock Price
Per Share Intrinsic Value
$500
Over (Under) Valuation/Sh
% Over (Under) Valued
$50
$0
($50)
($100)
($150)
($200)
($250)
($300)
($350)
$400
$300
$200
$100
$0
50%
0%
-50%
-100%
-150%
-200%
-250%
-300%
2007
7.9%
Financial Analysis & Valuation, Page 3 of 5
2008
2009
2010
2011
2012
Analysts: Pascal Laucht, David-John Tiemens
Relative Valuation
Stock Price/Intr. Value
Price to Earnings
Price to Free Cash Flow
Price to Sales
Price to Book
Earnings Yield
Dividend Yield
Free Cash Flow Yield
2007
2008
$288.75
27.6
N/A
1.0
0.8
3.6%
0.6%
N/A
$359.25
30.1
N/A
1.3
0.9
3.3%
0.5%
-5.2%
Price to Earnings
2009
$99.90
41.9
N/A
0.4
0.2
2.4%
1.6%
-9.5%
2010
2011
2012
$135.50
8.9
15.6
0.5
0.3
11.2%
1.6%
6.4%
$148.10
4.5
N/A
0.4
0.3
22.4%
2.0%
-5.7%
$180.80
3.9
N/A
0.4
0.3
25.7%
1.9%
-3.3%
Price to Free Cash Flow
2013E
$418.85
24.4
59.8
1.0
0.6
4.1%
1.0%
1.7%
Price to Sales
2014E
2015E
$427.30
24.1
31.6
1.0
0.6
4.1%
1.0%
3.2%
$437.31
24.0
29.6
1.0
0.6
4.2%
1.1%
3.4%
2016E
2017E
$444.54
19.0
24.4
1.0
0.6
5.3%
1.1%
4.1%
$446.41
18.9
20.5
0.9
0.6
5.3%
1.1%
4.9%
Earnings Yield
Price to Book
70
1.4
30%
60
1.2
25%
50
1.0
20%
40
0.8
30
0.6
20
0.4
10
0.2
5%
0
0.0
0%
Relative Valuation Pricing Model
2013E Ratio
Ratio
Price to Earnings
24.4
Price to Free Cash Flow
59.8
Price to Sales
1.0
Price to Book
0.6
Adjust
Ratio
2013
Metric
$17.13
$7.00
$428.32
$679.41
Intrinsic
Value
$418.85
$418.85
$418.85
$418.85
Intrinsic Value Estimates vs. Current
Price
2013E
Current Price
PV of Free Cash Flows
Dividend Discount Model
Price to Earnings
Price to Free Cash Flow
Price to Sales
Price to Book
$180.80
$418.85
$70.04
$418.85
$418.85
$418.85
$418.85
Dividend Yield
15%
10%
Dividend Discount Valuation Model
VW
Volkswagen AG
Annual Dividend
2007
2008
2009
2010
$1.80
$1.93
$1.60
$2.20
1-Yr Div Growth
3-Yr Div Growth
5-Yr Div Growth
Risk-Free Rate
5-Yr Beta
Market Premium
Required Return
Alternative Beta
Intrinsic Value Estimates vs. Current Price
16.7%
29.8%
14.2%
2.00%
0.76
7.0%
8.7%
0.95
May 6, 2013
2011
$3.00
PV Dividends 1-4
PV Perpetual Div.
Intrinsic Value
Current Price
14.0%
2013E
$3.99
2012
$3.50
$14.76
$55.28
$70.04
$180.80
($70.04)
Expected Dividend Growth Rates
11.0%
8.0%
5.0%
2014E
2015E
2016E
$4.43
$4.78
$5.02
Dividend Yeld
1.9%
If Purchased For:
Expected Return =
$3.99
$4.43
$70.04
8.6%
$4.78
$82.06
Analyst Notes:
Based on a current dividend of $3.50, expected growth as shown above and an equity required
return of 8.7%, VW is worth $70.04 per share, vs. a current price of $180.80.
Compared With:
Compared With:
General Motors Company
S&P 500 Index
2.0%
2017E
$5.12
$77.03
Toyota Motor Corporation
$450
$400
$350
$300
$250
$200
$150
$100
$50
$0
VW
Current Price PV of Free
Cash Flows
Dividend
Discount
Model
Price to
Earnings
VW-Performance-Analysis. Datasource: CapitalIQ
Price to Free Price to SalesPrice to Book
Cash Flow
GM
60%
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
Financial Analysis & Valuation, Page 4 of 5
Toyota
VW
^SPX
50%
40%
30%
20%
10%
0%
-10%
-20%
Analysts: Pascal Laucht, David-John Tiemens
Piotroski Financial Fitness Scorecard (10-point scale)
2008
Positive Net Income
Positive Free Cash Flow
Growing ROA (% change NI > % change TA)
Earnings Quality (Operating Income > Net Income)
Total Assets Growing Faster Than Total Liabilities
Increasing Liquidity (Current Ratio)
% Change Shares Outstanding (Diluted) < +2.0%
Expanding Gross Margin
Asset Turnover (% change sales > % change assets)
Total Liabilities to Operating Cash Flow (EBIT) < 4.0
Piotroski Score
Altman Probability of Bankruptcy Z-Score
(Current Assets-Current Liabilities)/Total Assets
Retained Earnings/Total Assets
Earnings Before Interest & Tax/Total Assets
Market Value Equity/Total Liabilities
Sales/Total Assets
Altman Score
2009
1
0
0
1
1
1
1
0
0
0
5
Weight
1.200
1.400
3.300
0.600
0.999
1
0
0
0
0
1
1
0
0
0
3
2008
2009
0.0812
0.2265
0.0947
0.6574
0.6771
1.74
0.0558
0.2491
0.0094
0.1727
0.5931
1.08
2010
1
1
1
1
1
0
1
1
1
0
8
2010
0.0544
0.2219
0.1238
0.2428
0.6357
1.28
2011
1
0
1
0
1
0
1
1
0
0
5
2011
0.0208
0.2079
0.1468
0.2171
0.6273
1.22
2012
2013E
1
0
1
0
1
1
1
1
0
0
6
2012
0.0293
0.2340
0.1282
0.2226
0.6216
1.24
1
1
0
1
0
0
1
0
1
0
5
2013E
0.0478
0.3090
0.1040
0.4857
0.6298
1.58
2014E
1
1
0
1
0
0
1
0
1
0
5
2014E
0.0478
0.3201
0.1040
0.4789
0.6298
1.58
2015E
1
1
0
1
1
0
1
0
0
0
5
2015E
0.0478
0.3317
0.1144
0.4761
0.6298
1.60
2016E
1
1
1
1
1
0
1
0
0
0
6
2016E
0.0478
0.3439
0.1248
0.4723
0.6298
1.62
2017E
1
1
0
1
0
0
1
0
1
0
5
2017E
0.0478
0.3694
0.1144
0.4697
0.6298
1.63
The interpretation for the Altman Score is: Safe Zone = Z > 2.9, Grey Zone = 1.23 < Z < 2.9, Distress Zone = Z < 1.23
Piotroski Financial Fitness Scorecard (10-pt scale)
9
8
7
6
5
4
3
2
1
0
VW-Performance-Analysis. Datasource: CapitalIQ
Altman Probability of Bankruptcy Z-Score
2
2
1
1
0
Financial Analysis & Valuation, Page 5 of 5
Analysts: Pascal Laucht, David-John Tiemens