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Volvo Cars drops IPO due to trade tensions and auto stocks downturn

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09/10/2018 | 04:32pm CEST
The logo of Geely Automobile Holdings is pictured at the Auto China 2016 auto show in Beijing

BEIJING/PARIS (Reuters) - Volvo Cars and its Chinese owner Geely have postponed plans to float shares in the Swedish carmaker, blaming trade tensions and a downturn in automotive stocks.

But while Volvo's plans for a Stockholm listing were delayed indefinitely, Britain's Aston Martin vowed to push ahead with its own initial public offering.

"We've come to the conclusion that the timing is not optimal for an IPO right now," Volvo Chief Executive Hakan Samuelsson told Reuters by telephone on Monday, confirming a decision which was first reported by the Financial Times.

Volvo and its Chinese parent had been discussing an IPO to value the carmaker at between $16 billion and $30 billion, sources have previously said. The company said a listing was still possible in the future.

But Samuelsson said IPO prospects had dimmed with the business cycle, amid a broad-based decline in automotive shares that has dragged the Stoxx 600 Autos & Parts index <.SXAP> 15 percent lower so far this year.

Even before the recent sell-off, however, some observers doubted the $30 billion upper end of Volvo's target valuation.

"We had expressed our reservations concerning lofty valuation ambitions before," Evercore ISI analyst Arndt Ellinghorst said on Monday. "Trade wars are just one red flag."

Washington's escalating trade spat with Beijing and tensions with Europe have rattled automotive investors, adding volatility to market outlooks.

Volvo is less exposed than its German premium rivals to U.S.-China tariffs, however, and has said it will juggle production of its XC60 SUV to reduce their impact.

It delivered 61,480 cars in China in the first half, a fraction of BMW's or Audi's sales.

Geely, which paid Ford Motor Co $1.8 billion for Volvo in 2010, also has stakes in Mercedes-Benz parent Daimler, truckmaker AB Volvo and Lotus.

CHINESE INROADS

Geely and its boss Li Shufu had concluded that Volvo should make deeper inroads into the Chinese market before listing, a person familiar with the group's thinking told Reuters.

And Volvo, which is developing Polestar as an electrified performance brand and owns a stake in Geely stablemate Lynk&Co, has "other alternatives" to raise finance, Samuelsson said.

The IPO postponement reflects bigger concerns about "price development after a potential IPO" rather than about the initial valuation, the CEO added, citing sensitivities over the prevalence of public pension funds among Swedish investors.

"What made me nervous especially was leaving headroom for investors" amid growing market uncertainties, he said.

Swedish telecoms operator Telia drew public wrath after its shares sank from their 2000 debut. For a domestic car brand, such a setback could dent both image and sales.

Samuelsson also said that Aston Martin, as a pure luxury play, was "more like Ferrari" - whose widely envied listing came close to late boss Sergio Marchionne's 10-billion-euro target valuation. Like Volvo, Aston Martin was once owned by Ford.

"I wish them luck with their IPO," Samuelsson said.

(Reporting by Norihiko Shirouzu and Laurence Frost; Additional reporting by Esha Vaish in Stockholm and Mekhla Raina in Bengaluru; editing by Jason Neely and Alexander Smith)

By Norihiko Shirouzu and Laurence Frost

Stocks mentioned in the article
ChangeLast1st jan.
BAYERISCHE MOTOREN WERKE -0.63% 77.69 Delayed Quote.-9.02%
DAIMLER -2.48% 54.42 Delayed Quote.-20.72%
FORD MOTOR COMPANY -2.09% 9.39 Delayed Quote.-24.82%
STOXX EUROPE 600 0.46% 384.09 Delayed Quote.-1.26%
TELIASONERA 0.02% 41.22 Delayed Quote.12.72%
VOLKSWAGEN -0.13% 148.88 Delayed Quote.-8.12%
VOLVO 0.28% 158.15 Delayed Quote.4.19%
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Financials ($)
Sales 2018 147 B
EBIT 2018 5 569 M
Net income 2018 5 506 M
Finance 2018 9 921 M
Yield 2018 7,37%
P/E ratio 2018 6,75
P/E ratio 2019 6,54
EV / Sales 2018 0,19x
EV / Sales 2019 0,19x
Capitalization 37 426 M
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Mean consensus HOLD
Number of Analysts 21
Average target price 10,8 $
Spread / Average Target 15%
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Managers
NameTitle
James P. Hackett President, Chief Executive Officer & Director
William Clay Ford Executive Chairman
Joseph R. Hinrichs Executive VP & President-Global Operation
Robert L. Shanks Chief Financial Officer & Executive Vice President
Jeff Lemmer Vice President & COO-Information Technology
Sector and Competitors
1st jan.Capitalization (M$)
FORD MOTOR COMPANY-24.82%37 426
TOYOTA MOTOR CORP-2.44%202 257
VOLKSWAGEN-8.12%89 463
DAIMLER-20.72%70 517
BAYERISCHE MOTOREN WERKE-9.02%63 729
HONDA MOTOR CO LTD-10.42%55 996