We like an analyst that takes a view. We like it even more when they put their proverbials on the line – in their first week in a new job.
So we should applaud Max Warburton, who has popped up at Sanford Bernstein and instantly provided a hair-raising explanation for the extraordinary rise in Volkswagen stock over recent months.
Consider the “VW fruit machine”:
Consider also that after the latest up-tick in VW’s share price, the German carmaker is now the fifth largest company in the world, capitalised at $164bn – bigger than JPMorgan, BP, Nestle, AT&T, and HSBC. And the price has doubled in less than three months – just as rivals like GM and Chrysler have skidded towards bankruptcy.
So what’s going on? Warburton, in a note to Bernstein clients on Friday, insisted he was putting forward just one potential explanation, but one that would appear to accuse Porsche of questionable market practises.
We put forward The Fruit Machine as one potential explanation for the VW price move. We stress that we are simply putting forward a series of questions. But Porsche hasn’t offered an explanation as to how it makes so much money from options nor will it provide a real view on the VW share price ascent — and we can’t find anyone else in the market with a good explanation.
Warburton points out that Porsche is open about the fact that it has been making billions from its VW holding – a figure put at €3.5bn in the company’s 2007 annual report. But he goes on to speculate that Porsche has been a €10bn credit line to fund the machine as set out above.
Not surprisingly, he finds it difficult to value either Porsche or VW, given the multitude of risks.
The only one the Bernstein man doesn’t cite is “regulatory.” But that might turn out to be the most pressing one of all.
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