GM's IPOreport
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GM’s IPO Will Be Overpriced, preliminary IPOreport, Monday Aug 16, 2010

$80 billion projected market cap?

The talk now is that GM wants to offer 20% for $16 billion, which puts a market cap on GM of $80 billion.

Government bailout money bought 61% of GM for $50 billion, which ‘coincidentally’ puts a market cap of $82 billion on GM

GM & Wall Street are trying to set an IPO price for the government to breakeven – won’t happen, see below.

Adverse trends will prevent an $80 billion valuation for GM

. The general outlook for GM’s business is not good based on potential economic issues, for example auto sales growth is stalling
. Today’s IPO buyers actively push back on IPO pricing
. Auto industry stocks trended down recently

GM should sell at a discount to Ford
which means a 50% loss on the government’s "investment"
Compare GM & Ford. Ford has a market cap of $42 billion

June quarter results for GM & Ford.

. Sales: the same for both, around $32 billion.
. Profits: Ford $2.6 billion versus $1.3 bb for GM
. Negative tangible book value: GM has a negative tangible book value of -$20 billion, Ford is trending to a breakeven tangible book value.

Current ratios

. GM, 1.15. (current assets: $60bb, current liabilities $52bb)
. Ford, 2.1 (current assets, $126bb, current liabilities $60bb)

Long term debt

. GM, $53bb
. Ford, $118bb

Investor confidence in GM projections hurt by "surprises"
Investors do not like surprises

. On August 5th GM’s CEO said "Our anticipation would be we’d roll it out (the IPO) there all at once." The apparent plan 10 days later (?) is to sell 20% not 100%, see above.
. The recent CEO replacement is requiring a delay in GM’s much anticipated IPO filing date. If GM can’t even meet its publicly acknowledged filing date of Friday, August 13, then how much confidence can investors have in sales & earnings projections?
. GM’s CEO implied that a $6.7 billion TARP loan was repaid from operations, when actually it was paid from additional borrowing. Borrowed from Peter to pay Paul. Then implied the money came from operating cash flow (?).

CEO Whitacre didn’t plan to exit pre-IPO

. Otherwise he wouldn’t have put himself in commercials
. You don't become the face of the company if you plan to be there only eight months.

Is Akerson the right CEO?

. The surprise decision to change CEO’s apparently was made in haste (see above) so, yes, it made sense to recruit from the board.
. However, Akerson has no experience running an industrial company like GM.
. He is yet another finance type. Finance-oriented executives excel in cost costing, but often lack game winning strategic vision -- even if they know the (heavy manufacturing) industry, which Akerson does not.

Is GM ‘cooking the books’ pre-IPO?

GM’s CFO said GM's results wouldn't keep improving at this pace in the second half of the year, because the first-half results included onetime gains, such as the reversal of some leasing provisions.

Market share declined

During the first six months GM's U.S. market share slipped to 18.9 percent from 20.5 percent over the same period in 2009. But CFO Liddell said the automaker's market share appeared to be stabilizing. Is it true or is it more IPO hype?

GM’s bad strategic planning

CHEVY VOLT – perfectly positioned to fail
Range: 40 miles per charge? $41k msr price

Nisson LEAF is a better value on the low end
Range: 47 to 138 miles. $33k msr price
LEAF is priced below the Volt, longer range

Tesla sedan is a better value on the high end
Range: 160 to 300 miles depending on selected options. $58k msr price
Better body style

COMPARE & CONTRAST
Will be updated when GM’s June quarter detailed results are filed. Sometimes the numbers are not directly comparable based on different accounting practices.

March 31 quarter

Percentages

GM

Ford (F)

Toyota (TM)

Honda (HMC)

Revenue

100%

100%

100%

100%

. Autotomotive

91%

. Financial services

zero

9%

Total Gross profit

12%

21%

14%

26%

. Automotive sector

12%

13%

. Financial services

SG& A

9%

10%

15%

R&D

6%

Interest exp

zero

5%

Costs & expenses

96%

95%

98%

96%

Operating profit after interest

4%

5%

1.8%

Income before tax & equity inc

2.5%

4%

Income tax %

38%

2%

Preferred stock dividends

0.6%

zero

zero

Net income

2.7%

6.6%

2.1%

3.2%

Market cap $bb

$82

$42

$110

$58

Market cap / annualized sales

0.7

0.33

0.47

0.58

Mrk cap / annualized net incm

23.7

5.0

22.3

18.3

Ford, applying a 40% tax rate

8.39

Tangible book value (TBV)

-$21

-$5

$114

$48

Quarterly sales

$32

$32

$58

$25

TBV / quarterly sales

-0.7

-0.2

2.0

1.9