Call me nuts but last year, 2014, in the October/November crash I made a promise to myself that if that happens again then I will pick up either Continental or Volkswagen. In the last couple of months Volkswagen have become around 30% cheaper and to me that is a lot on a company that are already "cheap". Right now it is being traded around 165 € which means a P/E of 7 and a P/B of 0.9 giving a dividend yield of almost 3% (that correspond to around 20% of their earnings). I find that to be insane cheap for an excellent world wide car producer.
Car producers are however cyclical and are currently benefiting from cheap steel, low oil prices that even leads in the extension to lowered prices also of polymer/plastics. This means that the car companies should be able to enjoy slightly higher margins and maybe even more sales due to the low price for gasoline. There are many obstacles in the world today and the fear of decreased sales in some large markets seems to make investors shaky.
I have since a long time been scared of cyclical companies and maybe I should just remove that barrier and get on with it by buying one!
Volkswagen is an excellent car company conglomerate. The reason why I say conglomerate is because that is what it is in reality. It is several excellent car brands that have been brought together underneath one umbrella being able to profit, not only from each other, but also from the total size of the conglomerate.
That it is a conglomerate leads to higher costs since each car brand have for instance their own designers and their own way of doing things which leads to them also having their own individual development and being able to adapt to their own home market demands accordingly. If SEAT designers having Spain as their strong home market would be designed from Germany by Germans I am sure the SEAT car would very quickly become something else that would then also probably not speak as strongly to the Spanish population. That they allow each brand their own individuality is, in my opinion, part of the reason for their strength.
If we look at what they offer then Volkswagen is present in almost each and every category as well as country. They have the best of the best as well as the best quality/price options. That they are producing the cars for Porsche, the biggest series produced sports car with around 20 billion € in yearly sales is just one example of what they are capable of. Today Volkswagen have a yearly revenue of around 200 billion € and profits around 10 billion €. To find out more about Volkswagen then please visit analysis of VW 2015.
My timing of the buy was, as the case never is, not ideal but I am still happy since it got 12 shares at the total cost including fees of 2,003.14 € this means that I paid 166.93 € per share. I hope that Volkswagen will continue to take over more brands as well as keep pushing the brands within this wonderful conglomerate structure so that the sales and earnings can keep increasing even more.
If you want to see my current Stock Portfolio then click on the link but the portfolio will not be fully updated until the end of the month.
5 comments:
Today I discovered that my new lectures in Business Administration have already started since 2,5 weeks. This means I have already failed one assignment which is bad for the total score and I have no group signed to me...
So I need to catch up on my studies now and blog articles will drop in quantity.
-Fredrik von Oberhausen
Hello and thanks for an interesting blog.
Volkswagen looks really cheap so I had to look it up.
One thing that i,m wondering about is the free cashflow.
If i´m reading it correct it looks like it´s -8314 million euros for 2014, -4295 for 2013, -12273 for 2012 and -10132 for 2011.
Also the long term dept has increased from 44000 million euros to 68000 million euros. What are your thoughts on that?
Sorry about the spelling it´s not my first language.
-Ted
Hi Ted,
I must admit that I almost never look deeper into cash flow or free cash flow. In this case I would say that the debt and FCF reasons are indeed connected.
They have taken on long term debt to make investments in other automotive brands. They have. not that long ago, taken over almost 90% of the truck producer MAN that will soon be de-listed. They have also taken over Porsche when they in turn tried to take over VW. They also stepped in and took 30% of Suzuki so they are very active in taking over brands, which also correctly so, is financed with long term debt in this age of no interest rate.
Does VW have a great future? That I do not know and with halved or worse earnings then all of a sudden VW would not longer be cheap.
I hope that I could be of help
The new electrical Porsche that were presented on the fair was very impressive! To manage to push down the 80% recharging to 15 minutes and offer a Porsche with its wonderful long time developed driving experience was more than I could have hoped for. Well done Porsche and VW!
My gosh! This is insane! My timing is by the look of things as awful as it can be!
Today I read an article saying that VW can be forced to pay a fine in the US due to too high emission rates! The fine can be as high as 18 billion USD! My guess is the share price will drop on Monday substantially.
Dang all the idiots and their shortcuts!
-Fredrik von Oberhausen
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