15 october 2019 - ubi banca

1

FERRARI

Initiation of Coverage BUY

15 October 2019 – 9:00 AM MARKET PRICE: EUR140.2 TARGET PRICE: EUR163.0

Branded goods

Data

Shares Outstanding (m): 181.6

Market Cap. (EURm): 25,476

Enterprise Value (EURm): 25,773

Free Float (%): 36.4%

Av. Daily Trad. Vol. (m): 0.45

Main Shareholder: EXOR NV (23.5%)

Reuters/Bloomberg: RACE.MI RACE IM

52-Week Range (EUR) 84.1 152.6

Source: FactSet, UBI Banca estimates

Performance

1m 3m 12m

Absolute 1.0% -5.2% 39.5%

Rel. to FTSE IT 6.2% -2.9% 31.0%

Graph aerea Absolute/Relative 12M

Source: FactSet

Analysts

Massimo Vecchio Senior Analyst [email protected] Tel. +39 02 62753016

Dario Fasani Analyst [email protected] Tel. +39 02 62753014

www.ubibanca.com/equity-research

From RACE to RAC-e

We initiate the coverage on Ferrari with a BUY rating based on the uniqueness of the brand that still has meaningful space for growth (0.05% penetration on the 18 million HNWI). This will be enhanced by the development of hybrid cars which, in our view, will be accretive to profitability margins. We believe this is not the consensus view which, in fact, is below our estimates. We also believe that, while meaningful revenues from the electrification will materialize only from 2021-22, P&L is already taking the brunt of the associated costs. Therefore, once again, consensus is not appreciating the full effect on profitability of the price/mix increase of the past two years. Our TP offers a 16% upside.

> SF90 stradale: the first plug-in hybrid in the series car. Last May

Ferrari launched its first series car with a hybrid engine (La Ferrari was

already hybrid, but it was not a series car and not plug-in either). The

1,000hp car is equipped with a 780hp V8 engine and with three electric

engines worth 220hp in total. We believe that the profitability of this car is

astronomical: it will sell at a price lower than that of La Ferrari (our guess

estimate is EUR450K) but the additional costs related to the electric

engine we estimate being around EUR20/30,000.The only official

statement the company made on that topic is that the car “generates a

margin that is above that of the 812 Superfast”.

> Why Ferrari customers are willing to pay such a price for a hybrid.

While many may see electrification as a price to pay in terms of cars

performances but useful to reduce emissions, this is not the case for sport

cars. The performances of the SF90 Stradale are quite peculiar: a) two of

the three electric engines are mounted on the front wheels transforming

the car into a 4WD at times, with obvious benefits on the acceleration (2.5

second from zero to 100Km/h) and road-handling; b) every electric engine

can also rotate at different speed. This phenomenon, known as torque

vectoring, gives an unparalleled control during turns.

> 60% of the range will be electrified by 2022. This was expressed in the

2018 CMD, and should expand margins. Together with the introduction of

the V6 engine, we believe this should reduce emissions so to allow the

company to surpass the 10K units mark without any stress.

> We estimate a visible 12.5% 2018-22 Adj Net Profit CAGR while

continuing to generate cash. UBI is 12% above 2020 consensus EPS.

> Main risks. Trade wars; regulations changes, F1 developments (sport

results, Liberty Media strategy, transition to Formula-E). Financials EURm

2018 2019E 2020E 2021E

Revenues (EURm) 3,420 3,630 4,122 4,650

EBITDA (EURm) 1,135 1,301 1,490 1,776

EBITDA margin (%) 33.2% 35.8% 36.1% 38.2%

EBIT (EURm) 826 903 1,044 1,215

EPS (EUR) 4.2 3.8 4.4 5.1

CFPS (EUR) 2.7 3.6 4.2 5.9

DPS (EUR) 1.0 1.1 1.3 1.5

Source: Company Data, UBI Banca Estimates

Ratios (priced on 14 October 2019)

2018* 2019E 2020E 2021E

P/E (x) 25.3 36.8 31.9 27.4

P/CF (x) 38.8 29.2 25.3 18.0

P/BV (x) 14.7 10.6 7.9 6.2

Dividend Yield 1.0% 0.8% 0.9% 1.1%

EV/EBITDA (x) 17.3 19.8 17.0 13.9

Debt/Equity (x) -0.3 -0.2 0.1 0.2

Debt/EBITDA (x) -0.3 -0.2 0.1 0.5

Source: Company data, UBI Banca Estimates, *18 average price

70

80

90

100

110

120

130

140

150

160

Oct

-18

No

v-18

Dec

-18

Jan

-19

Feb

-19

Mar

-19

Ap

r-19

May

-19

Jun

-19

Jul-

19

Au

g-19

Sep

-19

Oct

-19

Ferrari NV FTSE Italia All-Share

FERRARI 15 October 2019

2

Index

1

INVESTMENT CASE: WHY HYBRIDS ARE AN OPPORTUNITY

4

2

SWOT ANALYSIS

8

3

FINANCIALS

9

4

VALUATION

11


3

Key Financials

(EURm) 2018 2019E 2020E 2021E

Revenues 3,420 3,630 4,122 4,650

EBITDA 1,135 1,301 1,490 1,776

EBIT 826 903 1,044 1,215

NOPAT 568 622 719 839

Free Cash Flow 425 607 667 917

Net Capital Employed 2,487 2,968 3,156 3,220

Shareholders’ Equity 1,354 1,878 2,509 3,227

Net Financial Position (1,133) (1,090) (646) 7

Source: Company data, UBI Banca estimates

Key Profitability Drivers

2018 2019E 2020E 2021E

Net Debt/Ebitda (x) -0.3 -0.2 0.1 0.5

Net Debt/Equity (x) -0.3 -0.2 0.1 0.2

Interest Coverage (%) 49.3 43.8 62.7 117.7

Free Cash Flow Yield (%) 2.1% 2.3% 2.5% 3.5%

ROE (%) 58.1% 38.3% 33.1% 30.0%

ROI pre-tax (%) 61.0% 48.1% 41.6% 37.6%

ROCE (%) 22.9% 21.0% 22.8% 26.0%


Key Valuation Ratios

2018 * 2019E 2020E 2021E

P/E (x) 25.3 36.8 31.9 27.4

P/BV (x) 14.7 10.6 7.9 6.2

P/CF (x) 38.8 29.2 25.3 18.0

Dividend Yield (%) 1.0% 0.8% 0.9% 1.1%

EV/Sales (x) 5.7 7.1 6.1 5.3

EV/EBITDA (x) 17.3 19.8 17.0 13.9

EV/EBIT (x) 23.7 28.5 24.3 20.3

EV/CE (x) 7.9 8.7 8.0 7.7

Source: Company data, UBI Banca estimates * Based on 2018 average price

Key Value Drivers

(%) 2018 2019E 2020E 2021E

Payout 24.6% 27.7% 30.0% 30.0%

NWC/Sales -1.5% -5.0% -5.0% -4.7%

Capex/Sales -18.6% -20.6% -17.7% -14.7%



4

INVESTMENT CASE: WHY HYBRIDS ARE AN OPPORTUNITY

We initiate the coverage on Ferrari with a BUY rating and a target price of

EUR163.0. Our investment case is based on the followings:

A unique asset that can leverage on a community of ultra-wealthy clients

worldwide extremely loyal to the brand;

The visibility on its revenues/cash streams also thanks to a long waiting list;

Figure 1 – Ferrari resiliency vs. other performance car manufacturers

Source: Company data

The pricing power that the brand is showing;

Its wide product offer compared to competition, and that this gap has only

enlarged in recent years (the launch of the “Icona” models and the addition of

the rear-mid engine architecture are good example);

Figure 2 – Ferrari product line-up

Source: Company data


5

The possibility to widen its products/geography matrix in segments

unexploited before: Gt potential customers and geographies like China (where

HNWI has the strongest expected CAGR of all worldwide regions) are

examples. According to Capgemini there are 18 million HNWI in the world

returning a penetration for Ferrari of only 0.05%;

The strong cash generation that will be returned to shareholders in the form of

dividends and buy back and that protects the competitive advantage the

company has;

We expect earnings surprise in the coming quarters;

The space available in terms of valuation, mostly when using absolute

methods.

On top of that, we believe that many on the market fears the introduction of hybrid

and electric cars will negatively impact company profitability and, more importantly,

will reduce the exclusivity of the brand. In our view instead:

Hybrids sport car are more performing than petrol cars as they add power and

torque while not reducing driveability;

Thus, the value customers attach to this kind of products is higher than the

increased content costs;

We believe that margins attached are higher than the current average. A

confirmation of that comes from the company itself that targets 60% of its

product mix to be hybrid by 2022 and, at the same time, a “significant increase

in average retail price thanks to price/product mix”. While it will not come

entirely from hybrids, for sure this category will not be dilutive;

As every technology, if one like Ferrari has an long history of mastering

leading edge technologies and very likely will continue to do in the hybrid-

electric space.

We made some estimates on the profitability of the first ever series Ferrari with a

hybrid propulsion, the SF90 stradale. We believe that it would sell (before VAT and

dealer margins) at EUR450,000 a level that is above any other series car by a wide

margin (the 812 Gts seems to us the most expensive series car and we estimate it

has a price, ex-VAT and dealer margins, of around EUR300,000). Summing up,

while in the general part of this sector report we named the price as one (if not the

main) factor preventing customers to buy hybrid/electric cars, this is not true in the

case of sport cars.

In terms of added content we estimate that it amounts to anywhere between EUR20,000 and EUR30,000 as can be seen in the following table:

Figure 3 – Hybrid extra content cost

Additional components Number of units Cost/Unit Total Cost

BMS 1 140 140

Battery Pack 1 6,000 6,000

Torque vectoring 3 200 600

Electronic control unit 3 290 870

Power Distribution Unit 3 650 1,950

Inverter 3 1,600 4,800

Motor (Pancake or PM-OC) 3 2,500 7,500

Charger 1 600 600

Total 22,460

Source: UBI Banca estimates


6

In terms of autonomous driving, what we wrote in the general part of this sector

report has mostly to do with mass market vehicles. Aside from the fact that this

trend will materialize in the very long in mass market as well, we believe that there

will always be a space for human-driven sport cars.

Autonomous Driving can be an interesting opportunity for Ferrari: it could be a

system for real-time coaching. We came across start-ups and University research

centers which are developing similar systems. In other words a software can

support the human in specific driving conditions (snow, mud, ice, race, mountain

uphill, etc) teaching the driver how to improve its performances. Or, it could simply

help the inexpert driver to manage a car like a Ferrari that some perceives as too

powerful to drive.

All in all, the combined effect of what we said would bring sales volumes above the

10,000 units mark, surpassing the Small Volume Manufacturer limit thus triggering

different emission targets. We believe this is not an issue as the combined effect of

Declining emission on petrol engines;

The benefit of lower emissions from hybrids;

The bonus granted by several regulators on hybrids

All would make the issue manageable. If eventually small fines would have to be

paid those should be not material.

Our estimates are above consensus and this is a crucial element of our investment

case:

Figure 4 – UBI vs Consensus

(EURm, units, %) 2019 2020

Cons UBI % change Cons UBI % change

Shipments (units) 9,839 10,329

Net Revenues 3,713 3,630 -2.2% 4,044 4122 1.9%

EBITDA – Adj 1,264 1,301 2.9% 1,443 1,490 3.3%

% 34.0% 35.8% 35.7% 36.1%

EBIT - Adj 923 903 -2.1% 1,044 1,044 0.0%

% 24.9% 24.9% 25.8% 25.3%

ADJ. EPS Diluted 3.75 3.66 -2.4% 4.08 4.57 12.2%

Ind. FCF 487 607 24.6% 459 667 45.3%


Our target price has been obtained as an average of three valuation methods

(DCF, EVA and a peers comparison) as shown in the table below. For more details

please look at the valuation section:


7

Figure 5 – Summary Valuation


161

154

175

163

DCF Peers EVA Average


8

SWOT ANALYSIS

Strengths

Unmatchable brand image, the world's most recognizable luxury performance

sport car;

Unique racing heritage;

Loyal and growing customer base composed of UHNWI;

Exceptional pricing power and value resiliency overtime;

Widest product offer declined by engines, GT/Sport, road/non-registered cars;

Leading hedge engineering capabilities;

In-house design, engineering, production, chassis and engines production

gives full control on the entire process and high flexibility;

Business model presents low risk on the retail side as dealers and stores are

franchisees;

Best-in-class "clients relations" activities;

Strong and resilient financial performances that allow to finance investments in

future technologies (like hybrids) which are unfeasible for many small and mid

producers;

High entry barriers;

Strong, experienced management team.

Weaknesses

Exposure to exchange rate fluctuations;

Product category not ideal to benefit from growth in Chinese's HNWI;

100% reliance on a single plant (Maranello, Modena only for chassis);

Opportunities

Personalization increasing more than we estimate;

Volumes increases;

Efficiencies higher than expected also on F1;

Above expectations development of the brand extension activities;

M&A opportunities also thanks to limited leverage and strong cash flow;

Threats

Trade war may impact volumes or margins and, with a single plant, is

impossible to balance-out also in the long run;

Need to maintain a proper balance between exclusivity and growth;

Lack of wins in F1;

Preserving the brand image is imperative;

Emissions rules and, more in general, legislation changes (including safety

standards);

Ferrari has to be wise in deciding which technology has to produce in-house

and which one can be outsourced in order to find a right balance between

control and investments.


9

FINANCIALS

We expect Ferrari to report:

A 2018-22 Sales CAGR of 9.0% with Cars and spare parts posting a 12.9%

(mostly driven by volumes, at 8.2%, while price/mix/forex is expected at

+4.3%);

Adj. EBITDA 2018-22 CAGR of 15.8% thanks to the price/mix and operating

leverage;

Adj. Net Income 2018-22 CAGR of 12.5% due to the expiration of the patent

box benefit that should increase the tax rate by more than 400bps;

EUR3.4 billion cumulated FCF for 2019-22 with the business turning cash

positive by 2022.

We assume the company to surpass the 10,000 units mark by 2020 and the

12,000 mark by 2022:

Figure 6 – Car sales estimates - breakdown by model

(Units) 2018 2019E 2020E 2021E 2022E 2023E 2024E

Sport cars 6,303 6,750 7,220 8,011 7,735 8,391 8,302

Tributo (488 GTB until 1H19) 3,153 2,700 3,000 3,200 3,000 3,000 2,900

F8 Spider (488 Spider until 4Q19) 1,850 1,650 1,200 1,500 1,700 1,600 1,500

488 Pista (458 Speciale) 300 935 900 900 200 900 1,000

488 Pista spider n.a. 350 350 450 550 500 550

Rear-mid engine (to be announced) n.a. n.a. 275 316 323 329 336

SF90 Stradale n.a. n.a. 200 350 700 700 600

V8 - Total 5,303 5,635 5,925 6,716 6,473 7,029 6,886

812 Superfast 950 1,045 1,045 1,045 993 1,092 1,147

LaFerrari/LaFerrari Aperta 30 n.a. n.a. n.a. n.a. n.a. n.a.

Icona n.a. 45 230 230 250 250 250

Fuori Serie 20 25 20 20 20 20 20

V12 - total 1,000 1,115 1,295 1,295 1,263 1,362 1,417

GT cars 2,948 3,089 3,109 3,525 4,965 5,495 6,046

Portofino (California T until 2018) 1,846 1,939 1,939 1,977 2,017 2,017 1,815

GTC4Lusso T 202 250 220 198 198 228 250

V8 - Total 2,048 2,189 2,159 2,175 2,215 2,245 2,066

GTC4Lusso 900 500 350 350 400 450 480

812 Gts 200 400 600 600 500 450

New models 200 200 400 850 900 1,050

Purosangue 900 1,400 2,000

V12 - total 900 900 950 1,350 2,750 3,250 3,980

Total cars sold 9,251 9,839 10,329 11,537 12,700 13,886 14,348

% change 10.2% 6.3% 5.0% 11.7% 10.1% 9.3% 3.3%

Source: Company data, UBI Banca estimates (for specific models)

Some more details on our estimates:

During 2Q19 call management stated that the order book has reached record

levels in both absolute and relative terms. Furthermore, the launch of the F8

Tributo is going very well, ahead of both the 458 and 488 for the respective

period since their launch. On the other hand the second half, while benefiting

from 4Q19 of the Monza ramp-up, will be hit by several factors:

o The end of the lifecycle of the 488GTB and Spider and the approach


10

of the end of the lifecycle for the GTC4Lusso and GTC4Lusso T;

o Also on the FXX K, extremely accretive mix-wise, there are hardly

any volume left;

o The slowdown of China volumes, which were particularly booming in

1H19 in anticipation of regulatory issues;

o A ramp up in the capex;

o A ramp up in spending to support the launch of 3 new models;

o A ramp up in investments on F1 given that the 2021 regulations are

completely different from the current ones.

2020 should witness another improvement on all metrics: a full year for the

Monza and the SF90 (which are high-margins products) coupled with volume

increase from the tail effect of the 5 new products launched during 2019 will

be the main drivers;

On the tax side, the current Patent Box exemption expired with 2019 but it was

extended so Ferrari filed its new request and is beginning talks with the

authorities. We believe that the new benefits will be lower than the ones

expiring, so we are factoring-in a 20% tax rate going forward with EUR55

million benefit on the cash-taxes side;

As far as China volume growth, as management stated during the call “the key

to China will be the Purosangue”. Also the SF90 will be an

attractive model for China from 2020 because its hybrid feature that will get a

significant tax benefits.

Lastly, our 3Q19 preview is represented in the below table:

Figure 7 - 3Q 2019 preview

(EURm) 3Q 2018A 3Q 2019E YoY chg.

Shipments (units) 2,262 2,285 1.0%

Total sales 838 853 1.8%

EBITDA Adj. 278 282 1.4%

EBITDA margin % 33.2% 33.0%

EBIT 202 203 0.3%

EBIT margin % 24.1% 23.7%

Net profit 287 162 -43.6%

Industrial Net (Debt)/Cash (372) (318)

Res. Net profit 146 162 10.9%



11

VALUATION

Our target price has been obtained as an average of three valuation methods

(DCF, EVA and a peers comparison).

Figure 8 – Summary Valuation


Peer Group valuation

Out of the entire universe of branded goods and luxury sports cars (see Figure 10

for more details) we selected a group of peers which we deem being more

comparable (although it is worth saying that a real comparable doesn’t not exist):

Hermes and Brunello Cucinelli have a similar concept of self-imposed

production limits and controlled distribution;

Those two companies, together with Essilor-Luxottica, are the ones, within the

peer group, with the lowest share of third-party production.

We excluded from the peer group used to asses the target price:

LVMH and Richemont because of their “holding company” nature;

Moncler because it outsource to third-party 100% of its production;

Ferragamo and Burberry because of their earning trend in the last year which

has been going in the opposite direction of Ferrari.

Before entering into the comparison exercise, it is worth focusing on why we

excluded Aston Martin from the peer group:

Lower number of models when compared to Ferrari product offer;

Lower number of engines, not necessarily internally developed;

Lower cash generation (2018, before IPO costs returned a FCF of GBP15

million);

Lower profitability (net loss in 2018, low EBITDA margin when adjusted for

capitalized R&D);

Lower return on capital.

The performance of this peer group has been broadly positive but below the YTD

performance of Ferrari:

161

154

175

163

DCF Peers EVA Average


12

Figure 9 – Share price performance

Company Price Market cap Share performance

mn 1M 3M 6M 12M YTD 3 Years

Brunello Cucinelli (EUR) 26.8 1,821 -8.0% -

15.7% -16.0% -9.2% -10.9% 49.0%

Hermes (EUR) 634.2 66,952 -1.4% -1.7% 5.8% 28.9% 30.8% 69.8%

EssilorLuxottica (EUR) 134.4 58,646 3.1% 13.9% 33.0% 16.8% 21.6% 20.8%

Aston Martin (GBP) 5.0 1,143 -24.0% -

51.8% -54.4% -71.5% -63.2% n.a.

Moncler (EUR) 34.2 8,823 -2.6% -

11.1% -6.3% 10.6% 18.2% 123.5%

LVMH (EUR) 379.3 191,685 -0.7% -1.2% 10.6% 44.5% 46.9% 127.4%

Burberry Group (GBP) 22.8 9,337 -6.9% 1.6% 0.9% 13.5% 17.7% 34.2%

Ferragamo (EUR) 16.3 2,750 -11.7% -2.5% -17.7% -11.3% -7.7% -28.9%

Richemont SA (EUR) 65.8 37,791 -10.8% -

11.7% 2.4% 4.5% 17.7% 8.0%

Ferrari 140.3 34,888 1.0% -5.2% 14.4% 39.5% 61.6% 191.6%

FTSE Italy 137.6 330,925 -0.5% -0.9% 0.5% 13.8% 19.1% 30.1%

Average (ex-Ferrari) -7.0% -

11.1% -4.6% 3.0% 7.9% 50.5%

Source: FactSet

With that in mind, comparing peers financials with Ferrari’s we note that:

Ferrari is investing well above peers as its capex/sales spread vs. them is

above 10% on average for the 2019-21 period;

At the same time its EBITDA margin is around 10% higher than that of peers

over the same time horizon;

The combined result of the two points above is that Ferrari FCF/EBITDA and

FCF Yield are broadly aligned with peers. Its ROCE (post-tax) is comparable

as well.

When compared to other branded goods stock and with Aston Martin it is clear

how Ferrari, and the peer group we selected, can boast better financials:

Figure 10 – Comparison with Ferrari on EBITDA margins, cash generation, capex/Sales and ROCE

Name TIER Price Curr Mkt Cap FCF/EBITDA Capex/Sales ROCE (post tax) EBITDA %

bn 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E

Brunello Cucinelli I 26.8 EUR 1.8 25.2% 33.3% 33.8% 7.8% 7.4% 7.0% 17.4% 16.9% 17.5% 17.3% 17.5% 17.7%

Hermes International I 634.2 EUR 67.0 55.4% 57.5% 0.0% 5.2% 4.8% 4.6% 64.1% 68.4% 73.9% 39.0% 39.3% 39.7%

EssilorLuxottica SA I 134.4 EUR 58.6 43.8% 49.6% 5.4% 5.5% 5.4% 5.4% 5.8% 6.3% 22.1% 22.6% 23.0%

Aston Martin II 5.0 GBP 1.1 -43.5% -7.9% 0.0% 20.1% 15.7% 13.3% 2.1% 8.7% 11.6% 20.3% 22.9% 23.9%

Moncler SpA II 34.2 EUR 8.8 53.7% 53.1% 50.3% 6.8% 6.3% 6.0% 55.4% 55.9% 54.5% 34.9% 35.1% 35.4%

LVMH II 379.3 EUR 191.7 47.2% 48.4% 51.8% 5.8% 5.3% 5.1% 17.6% 19.2% 20.1% 27.2% 27.6% 27.7%

Burberry Group II 22.8 GBP 2.3 45.7% 49.5% 51.9% 7.0% 6.6% 6.4% 55.1% 53.9% 55.6% 21.0% 21.7% 22.5%

Salvatore Ferragamo II 16.3 EUR 2.1 46.4% 48.8% 49.4% 5.0% 4.8% 4.8% 17.4% 19.0% 21.2% 15.5% 16.3% 17.3%

Richemont II 65.8 CHF 2.1 37.2% 43.6% 45.9% 5.6% 5.5% 5.5% 11.4% 11.9% 12.7% 20.4% 20.8% 21.6%

Average

41.5% 46.8% 35.4% 6.1% 5.9% 5.7% 29.0% 30.4% 32.6% 26.1% 26.4% 26.8%

Ferrari

45.7% 48.8% 21.0% 5.8% 5.5% 5.5% 17.4% 19.0% 20.1% 21.0% 22.6% 23.0%

Median – All peers

46.7% 44.8% 51.6% 20.6% 17.7% 14.7% 25.2% 27.1% 30.5% 35.8% 36.1% 38.2%



13

In terms of multiples, the Tier I peer group shows a very low dispersion of

multiples, therefore we consider fair to use all of those peers as a valuation tool:

Figure 11 – Peer Group Multiples

Tier Price Curr MktCap EV/EBITDA EV/EBIT P/E Adjusted FCF Yield

bn 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E

Hermes International I 634.2 EUR 67.0 23.9 x 21.5 x 19.4 x 27.4 x 24.6 x 22.2 x 44.1 39.8 36.1 2.2% 2.5% 2.8%

EssilorLuxottica I 134.4 EUR 58.6 15.8 x 14.5 x 13.3 x 22.7 x 20.6 x 18.6 x 30.3 27.9 25.2 2.9% 3.5% 3.8%

Brunello Cucinelli II 26.8 EUR 1.8 17.7 x 16.2 x 14.6 x 24.2 x 22.0 x 19.9 x 34.7 33.1 29.9 1.4% 2.1% 2.3%

Aston Martin II 5.0 GBP 1.1 7.9 x 5.3 x 4.2 x 24.4 x 11.4 x 7.9 x n.a. 18.3 9.5 -9.6% -2.7% 5.2%

Moncler SpA II 34.2 EUR 8.8 14.3 x 12.2 x 10.7 x 16.5 x 14.1 x 12.3 x 23.7 21.9 19.6 3.5% 3.9% 4.1%

LVMH II 379.3 EUR 191.7 13.7 x 12.3 x 11.2 x 17.3 x 15.5 x 14.1 x 26.1 23.5 21.6 3.6% 4.0% 4.6%

Burberry Group plc II 22.8 GBP 2.3 2.4 x 2.2 x 10.8 x 11.2 x 9.9 x 13.9 x 14.4 12.6 24.2 3.4% 3.9% 4.6%

Salvatore Ferragamo II 16.3 EUR 2.1 1.7 x 1.6 x 13.1 x 10.6 x 9.3 x 18.8 x 14.8 12.7 31.4 3.6% 4.2% 4.8%

Richemont II 65.8 CHF 2.1 2.2 x 2.0 x 10.4 x 10.6 x 9.4 x 15.2 x 14.3 12.7 25.4 3.0% 3.9% 4.5%

Average - Tier I 19.1 x 17.4 x 15.7 x 24.7 x 22.4 x 20.2 x 36.4 x 33.6 x 30.4 x 2.2% 2.7% 2.9%

Median – All peers 13.7 x 12.2 x 10.7 x 17.3 x 14.8 x 12.7 x 27.1 x 23.5 x 20.9 x 2.3% 2.5% 3.4%

Ferrari 140.2 EUR 26.5 19.8 x 17.0 x 13.9 x 28.5 x 24.3 x 20.3 x 36.8 x 31.9 x 27.4 x 2.3% 2.5% 3.5%

Prem./(Disc.) toTier I 3.6% -2.2% -11.8% 15.3% 8.3% 0.6% 1.2% -5.2% -10.0% -6.0% 6.1% -

15.3%

Source: FactSet

We believe the combination of risk and growth allows Ferrari to be valued on same

static multiples than its peers, meaning a valuation of EUR154.0 per share

(averaging 2020-22):

Figure 12 – Peers comparison valuation

(EURm, x) 2020 2021 2022

EV/EBITDA - peers 17.4 15.7 14.2

Ferrari Adj. EBITDA - Industrial ops. € 1,467 € 1,750 € 2,013

Implied EV € 25,507 € 27,569 € 28,539

Ferrari Debt/(Cash) -€ 146 -€ 799 -€ 1,723

Pension liabilities € 87 € 82 € 78

A - FERRARI Equity value € 25,567 € 28,286 € 30,184

PE - Peers 33.5 30.4 27.3

Ferrari Net Profit € 815 € 949 € 1,013

B - FERRARI Equity Value € 27,265 € 28,826 € 27,683

Average of A and B € 26,416 € 28,556 € 28,934

FinCo Value 534 605 630

Ferrari Group - Fair value € 26,949 € 29,161 € 29,564

Number of shares 182 182 182

Ferrari Group - fair value p.s. € 145.4 € 157.2 € 159.3



14

DISCOUNTED CASH FLOW

The DCF is our preferred valuation method given that, as we already wrote, the

asset is a “unicum" in our view with a solid and visible cash flow generation. Here

below you’ll find the assumptions used for the DCF valuation:

Explicit estimates until 2024;

Terminal value calculated on a revenues growth of 4.0% and an EBIT

margin at 28%, capex in line with D&A, and neutral. This returns an exit

EV/EBITDA multiple of 15.1x;

A WACC of 6.0% deriving from:

o A free risk rate of 2.5%, higher than the current market one;

o An equity risk premium of 4.5%;

o A beta of 1.0;

o A sustainable D/E of 19% (implying Debt/EBITDA of 2.5x).

In summary, as a result we would value Ferrari at EUR160.6 based on our DCF:

Figure 13 – DCF summary valuation

(EURm)

PV of future cash flows € 5,383

PV of Terminal value € 24,086

Enterprise value € 29,469

Net debt YE 2018 - Industrial -€ 298

Equity Value € 29,172

No of shares (m) 182

Equity Value ps € 160.6



15

EVA Valuation

The EVA is a valuation method to be favored as well because, although it

considers only partially the cash generation side of the business (it does it through

the deleverage) it takes into account the return on capital of this business. ROCE

is a topic to be looked carefully in a company that runs its single plant far away

from its full capacity.

With a post tax return of 27% Ferrari, on an EVA basis, should be worth in our view

EUR175 p.s.:

Figure 14 – EVA Valuation

(EURm, %)

Av. CE € 3,096

Av. EBIT (post tax) € 834

Av. ROACE 2019-22 27.0%

WACC 2.67%

Risk free rate 2.5%

Beta 1.00

Market premium 4.5%

Cost of Equity 7.0%

Cost of debt 0.8%

% theoretical Debt on CE 70.0%

ROACE/WACC 10.1

CE - Average € 3,096

A - Implied EV € 31,235

B - Net Debt/(Cash) - average 19-22 -€ 593

C - Pension liabilities € 74

Implied Equity value (A-B-C+D) € 31,753

Number of shares 182

Fair value 175


Figure 15 – EVA Valuation – Sensitivity Analysis

ROACE

26.0% 27.0% 28.0%

WACC 2.2% 206.6 214.4 222.3

2.7% 168.4 174.8 181.2

3.2% 142.3 147.7 153.1



16

Income Statement

(EURm) 2018 2019E 2020E 2021E

Net Revenues 3,420 3,630 4,122 4,650

EBITDA 1,135 1,301 1,490 1,776

EBITDA margin 33.2% 35.8% 36.1% 38.2%

EBIT 826 903 1,044 1,215

EBIT margin 24.2% 24.9% 25.3% 26.1%

Net financial income /expense -23 -30 -24 -15

Associates & Others 3 5 5 5

Profit before taxes 803 874 1020 1200

Taxes -16 -155 -190 -233

Minorities & discontinuing ops 0 0 0 0

Net Income 787 719 830 967


Balance Sheet

(EURm) 2018 2019E 2020E 2021E

Net working capital -51 -182 -206 -220

Net Fixed assets 2,374 2,726 3,008 3,131

Other assets/(liabilities) 164 -379 -415 -352

Capital employed 2,487 2,968 3,156 3,220

Shareholders' equity 1,349 1,873 2,504 3,222

Minorities 5 5 5 5

Shareholders' funds 1,354 1,878 2,509 3,227

Net financial debt/(cash) -1,133 -1,090 -646 7


Cash Flow Statement

(EURm) 2018 2019E 2020E 2021E

NFP Beginning of Period (1,679) (1,547) (1,504) (1,060)

EBITDA 1135 1301 1490 1776

Interest expenses -23 -30 -24 -15

Cash taxes -16 -155 -190 -233

Change in Working Capital 16 130 25 13

Other -70 80 70 45

Operating Cash Flow 1,042 1,327 1,371 1,587

Net Capex (637) (749) (728) (684)

Other Investments (146) (65) (56) (127)

Free Cash Flow 259 513 587 775

Dividends Paid (136) (195) (199) (249)

Other & Chg in Consolid. Area 0 0 0 0

Chg in Net Worth & capital Incr. (136) (340) 0 0

Change in NFP 132 43 444 653

NFP End of Period (1,547) (1,504) (1,060) (407)



17

Financial Ratios

(%) 2018 2019E 2020E 2021E

ROE 58.1% 38.3% 33.1% 30.0%

ROI 61.0% 48.1% 41.6% 37.6%

Net Fin. Debt/Equity (x) -0.3 -0.2 0.1 0.2

Net Fin. Debt/EBITDA (x) -0.3 -0.2 0.1 0.5

Interest Coverage 49.3 43.8 62.7 117.7

NWC/Sales -1.5% -5.0% -5.0% -4.7%

Capex/Sales -18.6% -20.6% -17.7% -14.7%

Pay Out Ratio 24.6% 27.7% 30.0% 30.0%

Source: Company data, UBI Banca estimates,

Per Share Data

(EUR) 2018 2019E 2020E 2021E

EPS 4.17 3.81 4.40 5.13

DPS 1.03 1.06 1.32 1.54

Op. CFPS 5.52 7.03 7.27 8.41

Free CFPS 2.25 3.22 3.53 4.86

BVPS 7.18 9.96 13.30 17.11


Stock Market Ratios

(x) 2018 * 2019E 2020E 2021E

P/E 25.3 36.8 31.9 27.4

P/OpCFPS 38.8 29.2 25.3 18.0

P/BV 14.7 10.6 7.9 6.2

Dividend Yield (%) 1.0% 0.8% 0.9% 1.1%

Free Cash Flow Yield (%) 2.1% 2.3% 2.5% 3.5%

EV (EURm) 19,609 25,773 25,330 24,676

EV/Sales 5.7 7.1 6.1 5.3

EV/EBITDA 17.3 19.8 17.0 13.9

EV/EBIT 23.7 28.5 24.3 20.3

EV/Capital Employed 7.9 8.7 8.0 7.7

Source: Company data, UBI Banca estimates * Based on 2018 average price

Growth Rates

(%) 2018 2019E 2020E 2021E

Growth Group Net Sales 0.1% 6.2% 13.5% 12.8%

Growth EBITDA 9.5% 14.6% 14.5% 19.2%

Growth EBIT 6.6% 9.4% 15.5% 16.4%

Growth Net Profit 46.5% -8.6% 15.5% 16.5%



18

Disclaimer

Analyst Declaration

This research report (the “Report”) has been prepared by Massimo Vecchio and Dario Fasani on behalf of UBI Banca S.p.A. (“UBI Banca”) in the context of the ancillary service provided by UBI Banca named “Investment research and financial analysis or other forms of recommendation relating to transactions in financial instruments” under Paragraph 5), Section B, Annex I of the Directive 2014/65/EU (“MiFID II”). UBI Banca is an Italian bank under art. 4 (1)(27) of MiFID II and it is supervised by the European Central Bank and duly authorised to provide investment services pursuant to Article 1, Paragraph 5, letter a), b), c), c-bis), e) and f) of the Legislative Decree 24 February 1998, n° 58 under the supervision of the Italian Authority for the financial markets (Consob). UBI Banca has its head office at Piazza Vittorio Veneto 8, 24122 Bergamo.

The analyst who prepared the Report, and whose name and role appear on the front page, certifies that:

a. The views expressed on the company, mentioned herein (the “Company”) accurately reflect his personal views, but do not represent the views or opinions of UBI Banca, its management or any other company which is part of or affiliated with UBI Banca group (the “UBI Banca Group”). It may be possible that some UBI Banca Group officers may disagree with the views expressed in this Report;

b. He has not received, and will not receive any direct or indirect compensation in exchange for any views expressed in this Report;

c. The analyst does not own any securities and/or any other financial instruments issued by the Company or any financial instrument which the price depends on, or is linked to any securities and/or any financial instruments issued by the Company.

d. Neither the analyst nor any member of the analyst’s household serves as an officer, director or advisory board member of the Company.

e. The remuneration of the analyst is not directly tied to transactions for services for investment firms or other types of transactions it or any legal person, part of the same group performs, or to trading fees it or any legal person that is part of the same group receives.

f. Massimo Vecchio is a member of AIAF.

General disclosure

This Report is for information purposes only. This Report (i) is not, nor may it be construed, to constitute, an offer for sale or subscription or of a solicitation of any offer to buy or subscribe for any securities issued or to be issued by the Company, (ii) should not be regarded as a substitute for the exercise of the recipient’s own judgement. In addition, the information included in this Report may not be suitable for all recipients. Therefore the recipient should conduct their own investigations and analysis of the Company and securities referred to in this document, and make their own investment decisions without undue reliance on its contents. Neither UBI Banca, nor any other company belonging to the UBI Banca Group, nor any of its directors, managers, officers or employees, accepts any direct or indirect liability whatsoever (in negligence or otherwise), and accordingly no direct or indirect liability whatsoever shall be assumed by, or shall be placed on, UBI Banca, or any other company belonging to the UBI Banca Group, or any of its directors, managers, officers or employees, for any loss, damage, cost, expense, lower earnings howsoever arising from any use of this Report or its contents or otherwise arising in connection with this Report.


19

The information provided and the opinions expressed in this Report are based upon information and data provided to the public by the Company or news otherwise public, and refers to the date of publication of the Report. The sources (press publications, financial statements, current and periodic releases, as well as meetings and telephone conversations with the Company’s representatives) are believed to be reliable and in good faith, but no representation or warranty, express or implied, is made by UBI Banca as to their accuracy, completeness or correctness. Past performance is not a guarantee of future results. Any opinions, forecasts or estimates contained herein constitute a judgement as of the date of this Report, and there can be no assurance that the future results of the Company and/or any future events involving directly or indirectly the Company will be consistent with any such opinions, forecasts or estimates. Any information herein is subject to change, update or amendment without notice by UBI Banca subsequent to the date of this Report, with no undertaking by UBI Banca to notify the recipient of this Report of such change, update or amendment.

Organizational and administrative arrangements to prevent conflicts of interests

UBI Banca maintains procedures and organizational mechanism (physical and non physical barriers designed to restrict the flow of information between the unit which performs investment research activity, and other units of UBI Banca) to prevent and professionally manage conflicts of interest in relation to investment research in accordance with art. 23 of Directive 2014/65/EU and under art. 34 (3) and art. 37 of the Regulation 2017/565/EU.

More specifically, UBI Banca has established, implements and maintains an effective conflicts of interests policy aimed at preventing and managing the potential conflicts of interest that could occur during the performance of the investment research services.

Insofar as the above mentioned organizational and administrative arrangements established by UBI Banca to prevent or manage potential conflicts of interests are not sufficient to ensure, with reasonable confidence, that risks of damage to the interests of the client will be prevented, UBI Banca engages to provide a clear disclosure of the specific conflicts of interests arising from the performance of investment research services, including a description of the sources of those conflicts and the steps undertaken to mitigate them, taking into account the nature of the client to whom the disclosure is being made. For further information please see UBI Banca’s website (www.ubibanca.com/equity-research - “Informativa sintetica sull’attività di ricerca”) and (www.ubibanca.com/Mifid - “Policy sintetica conflitti di interessi”). More details about the conflicts of interests policy will be provided by UBI Banca upon request.

Disclosure of interests and conflicts of interests pursuant to Delegated Regulation 2016/958/EU

In relation to the Company the following interest/conflict of interest have been found:

> UBI Banca may have long or short positions with the issuer

> UBI Banca has delivered corporate finance services to Ferrari N.V. in the last 12 months

On the basis of the checks carried out no other interest/conflict of interest arose.

Frequency of updates

UBI Banca aims to provide continuous coverage of the companies in conjunction with the timing of periodical accounting reports and any exceptional event that occurs affecting the issuer’s sphere of operations and in any case at least twice per year. The companies for which UBI Banca acts as Sponsor or Specialist are covered in compliance with regulations

http://www.ubibanca.com/equity-research


http://www.ubibanca.com/Mifid


20

of the market authorities.

For further information please refer to www.ubibanca.com/equity-research

Valuation methodology

UBI Banca’s analysts value the Company subject to their recommendations using several methods among which the most prevalent are: the Discounted Cash Flow method (DCF), the Economic Value Added method (EVA), the Multiple comparison method, the SOP method and the NAV method.

The analysts use the above valuation methods alternatively and/or jointly at their discretion. The assigned target price may differ from their fair value, as it also takes into account overall market/sector conditions, corporate/market events, and corporate specifics (i.e. holding discounts) reasonably considered to be possible drivers of the company’s share price performance. These factors may also be assessed using the methodologies indicated above.

For further information please refer to www.ubibanca.com/equity-research.

Ranking system

UBI Banca’s analysts use an “absolute” rating system, not related to market performance. The explanation of the rating system is listed below:

Buy: if the target price is 15% higher than the market price, over the next 12 months.

Hold: if the target price is 15% below or 15% above the market price, over the next 12 months.

Sell: if the target price is 15% lower than the market price, over the next 12 months.

No Rating: the investment rating and target price have been suspended as there is not sufficient fundamental basis for determining an investment rating or target. The previous investment rating and target price, if any, are no longer in effect. Alternatively, No Rating is assigned in certain circumstances when UBI Banca is acting in any advisory capacity in a strategic transaction involving the Company.

Target price: the market price that the analyst believes that the share may reach within a one-year time horizon.

Market price: closing price on the day before the issue date of the report, appearing on the first page.

Distribution

Italy: This document is intended for distribution in electronic form to “Professional Clients” and “Qualified Counterparties” as defined by Legislative Decree 24 February 1998, n. 58 and by Consob Regulation n. 16190 dated 29.10.2007, as further amended and supplemented.

This Report has been released within 30 minutes from the timing reported on the front page.

IN THE UNITED KINGDOM, THIS DOCUMENT IS BEING DISTRIBUTED ONLY TO, AND IS DIRECTED ONLY AT PERSONS WHO (A) ARE (I) PERSONS FALLING WITHIN ARTICLE 19 OR ARTICLE 49 OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER 2005 (AND ONLY WHERE THE CONDITIONS CONTAINED IN THOSE ARTICLES HAVE BEEN, OR WILL AT THE RELEVANT TIME BE, SATISFIED) OR (II) ANY OTHER PERSONS TO WHOM IT MAY BE LAWFULLY COMMUNICATED; AND (B) ARE QUALIFIED INVESTORS WITHIN THE MEANING OF ARTICLE 2(1)(E) OF THE PROSPECTUS DIRECTIVE (DIRECTIVE 2003/71/EC), (ALL SUCH PERSONS BEING REFERRED TO AS "RELEVANT




21

PERSONS"). THIS DOCUMENT MUST NOT BE ACTED ON OR RELIED ON BY PERSONS WHO ARE NOT RELEVANT PERSONS. SWITZERLAND THIS REPORT DOES NOT CONSTITUE A PROSPECTUS WITHIN THE MEANING OF THE ARTICLE 652a OR ART. 1156 OF THE SWISS CODE OF OBLIGATIONS OR A LISTING PROSPECTUS WITHIN THE MEANING OF THE LISTING RULES OF THE SIX SWISS EXCHANGE OR ANY OTHER TRADING VENUES IN SWITZERLAND, OR A SIMILAR COMMUNICATION WITHIN THE MEANING OF ART. 752 OF THE SWISS CODE OF OBBLIGATIONS, AND HAS BEEN PREPARED WITHOUT REGARD TO THE SWISS LAWS AND REGULATIONS, AND DOES NOT CONSTITUTE AN OFFER TO SUBSCRIBE FOR, BUY OR OTHERWISE ACQUIRE ANY SECURITY OF THE COMPANY.

Copyright

This Report is being supplied solely for the recipient’s information and may not be reproduced, redistributed or passed on, directly or indirectly to any other person or published, in whole or in part, for any purpose without prior written consent of UBI Banca.

The copyright and intellectual property rights on the data are owned by UBI Banca Group, unless otherwise indicated. The data, information, opinions and valuations contained in this Report may not be subject to further distribution or reproduction, in any form or via any means, even in part, unless expressly consented by UBI Banca.

By accepting this Report the recipient agrees to be bound by all of the forgoing provisions.

Distribution of ratings

Equity rating dispersion in the past 12 months

Buy Hold Sell No Rating

89.8% 6.1% 2.1% 2.0%

Proportion on issuers to which UBI Banca has supplied investment banking services relating to the last 12 months

Buy Hold Sell No Rating

95.9% 100% 100% 100%

For further information regarding yearly and quarterly rating statistics and descriptions, please refer to www.ubibanca.com/equity-research.



22

SERVIZIO STUDI

Head of Research Department

Giovanni Barone

[email protected]

Industry Research

Macroeconomic and Financial Market Research

Equity Research

Enza De Vita

Francesca Pascali

Marco Cristofori

[email protected]

[email protected]

+39.02.6275 3015

[email protected]

Anna Cristina Visconti

Vincenzo Petrignano

[email protected]

[email protected]

Massimo Vecchio

+39.02.6275 3016

Paolo Manzoni

[email protected]

[email protected]

Oriana Cardani, CFA

Quantitative Analysis

Paolo Leoni

+39.02.6275 3017

[email protected]

[email protected]

Francesco Martinelli

[email protected]

Dario Fasani

+39.02.6275 3014

[email protected]

ECM & DCM

GLOBAL MARKETS SALES

Head of ECM & DCM

Head of Global Markets Sales

Marco Germano (Key Executive)

Alessandro Michele Ravogli

+39.02.7781 4651

[email protected]

[email protected]

Head of Sales ECM & DCM

Gisella Barisone (Key Executive)

Andrea Paolo Martini

+39.02.7781 4618

+39.02.7781.4341

[email protected]

[email protected]

Ilenia Osimi

Roberta Pupeschi

[email protected]

+39.02.7781 4682

[email protected]

Pierfrancesco Genoviva

[email protected]

15 october 2019 - ubi banca

Documents