the prancing horse premium: ferrari’s...
TRANSCRIPT
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THEPRANCINGHORSEPREMIUM:FERRARI’SIPO
The“other”ridesharingcompany!
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Ferrari:TheBackStory
¨ TheFerraristorystartedwithEnzoFerrari,aracingcarenthusiast,starKngScuderiaFerrariin1929,toassistandsponsorracecardriversdrivingAlfaRomeos.
¨ Ferrariasacarmakingcompanywasfoundedin1947,withitsmanufacturingfaciliKesinMaranelloinItaly.
¨ Inthemid-1960s,infinancialtrouble,EnzoFerrarisolda50%stakeinthecompanytoFiat.Thatholdingwassubsequentlyincreasedto90%in1988(withtheFerrarifamilyretainingtheremaining10%).
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TheFerrariLegend
¨ Fromtheracetracks:ThecompanyacquireditsracinglegendstatusfromwinningonmoreFormula1racesthananyothercompanyinhistory.
¨ Fromcelebrityconnec2ons:someofFerrari'sstandingcomesfromitsconnecKontocelebriKes.FromThorBaKstatoJusKnBiebertoKylieJenner,theFerrarihasbeenaninstrumentofmisbehaviorfor(usuallyyoungandrich)celebriKes.
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Theautobusinessisabadone
¨ Withlowrevenuegrowth:Revenuesgrewonly5.63%ayearfrom2005to2014,inspiteoftheboostfromemergingmarketsales.
¨ Poorprofitmargins:Themedianpre-taxoperaKngmarginacrossallglobalautocompaniesisonly4.46%andasignificantproporKonhaveoperaKnglosses.
¨ Andbigreinvestmentneeds:TradiKonalinvestmentsinplantandequipment(andassemblylines),supplementedwithR&D(asthetechcomponentgrows)haspushesthisexpenseuptoalmost5%ofrevenues.
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ThesavinggraceforFerrari
¨ Ultraluxuryautomobilesareseeingrevenuesgrowfasterthantherestoftheautobusiness,primarilyasaresultoftheriseoftherichinAsia.(Ferrari’ssaleshavebeenflatforthelastfiveyears)
¨ ThesecompanieshaveamongthehighestoperaKngmarginsamongtheautocompanies(Withan18.2%operaKngmargin,Ferrariranksinthe95thpercenKle.
¨ BysKckingtoalowgrowthstrategy,Ferrarihasbeenabletokeepitsreinvestmentneedsmodest.
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TheFerrariValueProposiKon
¨ Styling:AFerrariisaworkofart,andthecompanyspendssubstanKalamountsonstylingandthelikledetailsthatgointoeveryFerrari.
¨ Speed:Whatmoreistheretosay?IfyouhavedreamedofbeingaFormula1driver,thisisaboutascloseasyoucanget..
¨ Story:ThecarcomeswithastorythatdrawsasmuchfromitscelebrityconnecKonsasitdoesfromitsspeedexploits.
¨ Scarcity:Notwithstandingthefirstthreepoints,itwouldbejustanotherluxurycarifeveryonehadone.So,ithastobekeptscarcetocommandthepricesthatitdoes,bothasanewcarandinitsusedversions.
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Ferrari:AnExclusiveGlobalClub
Ferrari sold only 7255 cars in 2014, barely changed from how many it sold in 2008.
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TheStatusQuoNarraKve
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TheRevitupnarraKve
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Whereisthebrandnamepremium?
Ferrari(my
es+matedvalue) AutoSector Reasonfordifference
EV/Sales 2.10 0.94Ferrari'soperaKngmarginis18.2%versusIndustryaverageof6.58%.
EV/InvestedCapital 1.97 1.02
Ferrariearnsamuchhigherreturnoncapital(14.56%)thanthesector(6.68%)
EV/EBITDA 12.57 9.05FerrariEBITDA/Investedcapitalis15.68%versusIndustryaverageof14.45%.
PE 22.87 10.00FerrarihasadebtraKoof9.43%versusIndustryaverageof39.06%.
PBV 2.56 1.29Ferrari has a slightly higher ROE and lower equity risk (because of less debt)
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TheIPOTwists
¨ Useofproceeds:InthisIPO,thebilliondollarsexpectedtoberaisedfromtheofferingwillgotoFiatforcashingoutsomeofitsownershipstake,andthusnotbenefitFerraristockholders.Thereisthereforenoneedtoaddtheseproceedsbacktothecashbalance(asIwouldhave,iftheIPOproceedshadbeenretainedbythefirm).
¨ Numberofshares/IPOpricepershare:TthenumberofsharesissKllinflux(noKcealltheemptyspacesintheprospectus).ThesecondisthatthepersharevaluewillbeafuncKonofthenumberofsharescreatedinthecompany.
¨ Control:TheexisKngownerswillgettwicethevoKngrightsontheirshares,relaKvetothethosewhobuysharesintheIPO,fortheirloyalty.Thetwobigowners,Exor(theinvestmentfundfortheAgnellifamily)andtheFerrarifamilywillcontrol49ofthevoKngrightswithabout33%oftheshares.ThesharesthatyouandIwillhaveachancetobuyattheIPOwillbethelow-voKngrightshares.Idon'tseemuchofadiscountonthesesharessinceevenwithouttheaddiKonalvoKngrights,itisunlikelythatanyonecanforcethecompanytochangeitsoperaKons,ifthatchangeisagainstthewishesoftheAgnelli/Ferrariclan.
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Tobuyornottobuy?
¨ Ferrariisaniconicbrandnameanditwillundoubtedlybemarketedassuch.Investorsmayverywellpriceinapremiumtoreflectthatbrandname.
¨ Thebrandnamevaluecomeswithacatch,whichisthatitderivessomeorabigporKonofthatvaluefromexclusivity.
¨ Toarriveatavalueof$11or$12billion,youneedanarraKvewhereFerraricandoublecarssoldwhilepreservingapricepremiumforthecars.