The IPO plans for Volvo Cars are moving ahead as the valuation indicated by investors reaches Zhejiang Geely’s target level, according to the Financial Times.
In July, Bloomberg reported that Geely was planning a stock-market listing of Volvo Cars as early as fall 2018, but initial feedback from institutional investors fell short of the Chinese owner’s expectations. The feedback from the discussions then indicated a market valuation of $12 to $18 billion – while Geely’s expectations were set much higher, at $16 to $30 billion.
The Financial Times reported on Thursday that investors have now indicated a valuation of the car manufacturer in the top of the target range – $30 billion.
The company would initially be listed in Stockholm, with a potential secondary listing in Hong Kong, the Financial Times writes. Even if Geely only lists a small part of Volvo Cars at that valuation it implies a huge profit. Geely only paid $1.8 billion to acquire Volvo Cars from Ford in 2010.
The $30 billion valuation would also imply a quite spectacular price-to-earnings ratio – almost three times what would be expected using a comparative valuation based on financial multiples. Bloomberg similarly found in July that even the ratio between the previously indicated $12 billion valuation and Volvo’s operating profit is higher than the price-to-earnings ratio of both BMW and Daimler.
Possible explanations for this premium include Volvo’s good positioning in autonomous driving tech, electric vehicle transition, access to the Chinese car market and an ambitious plan to double sales and raise profitability by 50% by 2025. Under Geely’s management the company has also achieved record sales and grown the Asia Pacific region into Volvo’s biggest market. Geely can also be credited with pushing Volvo into the luxury market segment.
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