Archive for November, 2010
Volkwagen Group (ADR:VLKAY) or (ETR:VOW) is the most dramatic growth story of the automobile industry in the last half a decade.
With growing brands across a range of incomes brackets and geographic markets: Bugatti, Bentley, Lamborghini, Audi, Volkswagen, Seat, Skoda and Scania — the Volkswagen Group has a largely complementary portfolio of brands. These brands account for 198 models — something to please and satisfy most every customer on every continent in the world.
Of course, Volkswagen AG also is part-owned by the quintessential German sports car brand: Porsche. This relationship allows for a significant number of R&D, Product Development and Procurement synergies between the two companies.
The company has delivered a 12.4 percent rise in vehicle deliveries in first ten months to 5.98 million vehicles. The group delivered record number of vehicles in October, 2010 (growth of over 9.8% compared with the market’s 4.5%). That is twice as much as its industry peer group.
Audi: Vorsprung Durch Technik
The group’s premium brand, Audi, has demonstrated a growth rate of 16.4 percent year-over-year by delivering around 916,900 cars around the world between January, 2010 and October, 2010. It is well on its way to crossing the much vaunted ‘million vehicle’ mark by the end of this year. In high-growth markets like China and Asia-Pacific, the brand has seen blistering growth rates of 55.7% and 49.3% respectively (please see chart below courtesy: VW Group).
The group has announced a massive €51.6 billion investment drive for its automotive division over the next 5 years — investing a large portion of that sum in environmentally-friendly technologies. Four-fifths of it will be invested in property, plant and equipment helping it modernize its production capability and expand its turnover capacity. The company’s Chinese joint ventures will invest an additional €10.6 billion between now and 2015.
Infact, with their new planned investments, the group has a stated goal to surpass Toyota as the world’s largest manufacturer of auto-mobiles.
As of end of November, 2010, the group’s stock is trading at a multiple of P/E multiple of 12 compared with its peer group that is trading at least a third of the way higher:
- Daimler (ETR:DAI) is trading P/E of 17.5;
- BMW is at P/E of 17.7;
- Toyota (TYO:7203) is at P/E of 18.6.
When I first allocated the VW ADR to my simulation portfolio on Sept 10, 2010 it traded at US$ 19.71. As of close of trading on Nov 26, 2010, the stock is trading at $28.39.
That is a 44% return over two and half months.
Thanks to its rising brand strength and market penetration in the world’s fastest growing automotive markets, I believe there is plenty of growth in both the fundamentals of the company and its stock.
Disclaimer: The author owns no stock in the Volkwagen Group. He does, however, drive a Volkwagen Touareg and previously has owned a couple of Audis and stands by their build quality and performance.