Wanted to take a look at what the near future looks like for Daimler, and what the upcoming spin-off will do to the stock price.
EBIT is Daimler’s preferred profitability metric, so I will use that going forward.
After the Trucks and Buses division is separated, Daimler will change its name to Mercedes-Benz. Daimler AG’s trailing EV/EBIT has hovered between a 12-30 multiple, spiking during recessions as visible below. Mercedes Benz Cars & Vans TTM EBIT is €13.3b, and this is expected to increase as the recovery continues.
This division includes all the financing operations of the companies, as well as other smaller ventures such as rental and ride-sharing.
In a recent earnings call, Daimler reiterated that:
Contract volume decreased, but we continue to finance or lease half of the vehicles we sell.
That gives a good indication of the split here, and I estimate approximately ~€600m of the financing EBIT will be allocated to Daimler Truck, and the other €2.3b left with MB.
That gives a total operational EBIT of €15.6b for Mercedes Benz AG, and roughly €1.6b EBIT for what will trade as Daimler Truck AG. The improving results in this division is making the target of a €30b+ float achievable as rivals such as Traton, Volvo and PACCAR trade at similar multiples, DT has a commanding share of the market, and will likely have in excess of €2b TTM EBIT by the time of the offering.
From the Q2 release:
Financing liabilities of €142.6 billion were below the level of 31 December 2020 (€145.8 billion). Adjusted for exchange-rate effects, there was a decrease of €5.4 billion, mainly due to the lower refinancing requirement from the leasing and sales financing business. 52% of the financing liabilities relate to notes and bonds, 21% to liabilities to banks,13% to liabilities from ABS transactions and 10% to deposits in the direct banking business
The debt is supposed to be split according to the two businesses. The banking business will stay within MB, and given Car & Van is roughly three times the size of Truck, assuming equal leverage, about €32b liabilities will be transferred to Truck and Mercedes’ debt will reduce to c. €110b. Note proceeds of the IPO will at least partially be used to reduce this and liabilities seem to be reducing QoQ so this is very much a high tide.
Assuming Daimler Truck retains the current Daimler payout policy of 40% of net profit, there would be roughly €600m available for distribution to all DT shareholders. If MB retained a 5% stake, that would equate to a €30m dividend. It is likely this stake would be higher but this is still a largely immaterial addition to overall EBIT until profits were to return to historical levels and MB’s stake was closer to double digits in which case this would start to add several hundred million euros to Mercedes-Benz’s bottom line.
This gives a pro forma EV of €161-444b (and a base EV of €62b for Daimler Truck). The nearest comparative is BMW, which has tended to trade at a 15x EV/EBIT multiple, however Daimler has higher margins, and this gap will increase post-spin. So it is likely the price will appreciate toward the higher of that range, towards the likes of Ferrari. This values the equity between €51 and €334b, or roughly €48-312 per share. This does not include Mercedes’ future stake in Daimler Truck expected to be worth at least €1.5b at 5%. Shareholders will then also receive a “significant majority stake” in Daimler Truck. 50% of a conservative float of €30b is €15b. I believe Daimler will be targeting at least 55% and a float of €35b or more considering the strength of the commercial vehicle market - remember also the bigger the stake they can sell the lower DT’s enterprise value will be, boosting the equity value. Essentially shareholders are about to receive at absolute minimum €66b of equity value, almost definitely more than €70b and possibly much more, and with DAI’s market cap rising from around €57b at the start of the year to €80b, it’s clear the market is aware of this. However buying in now simply for the distribution is probably unwise as that has been priced.