The Ferrari Owners’ Club
of Great Britain

Does It Make Sense To Own A Piece Of Ferrari?

19-11-2014

This article by Andrew Goodman was posted on the website of Forbes Online:

 

Their signature red, beautifully-designed bodies turn heads at red carpet events. Their engines are constructed to emit some of the most pleasing sounds on earth as you accelerate down the road. Their posters dot the walls of children’s bedrooms and man-caves alike, equally coveted but rarely attainable since they cost as much as—if not more than—your house. There may not be a more desirable sports car than a Ferrari and while most of us will only drive one in our dreams, soon you will be able to casually brag to your friends and family that you own a piece of Ferrari. Ferrari has announced plans for an initial public offering in 2015.

Enzo Ferrari founded the racecar manufacturer in 1929, and in 1947 the company started producing streetcars. Fiat, which is now Fiat Chrysler Automobiles, initially acquired 50% of Ferrari in 1969, and today owns 90% of Ferrari. Ferrari currently ranks as the most powerful brand in the world, according to a study of 500 companies by Brand Finance, a leading brand consultancy firm. In an effort to capitalize on the Ferrari brand and maximize shareholder value FCA recently announced that it will sell 10% of its Ferrari holding in an initial public offering. Another 80% will be spun off to shareholders and the remaining 10% is owned by Piero Lardi Ferrari, the son of Enzo Ferrari. Shares are expected to be listed in the U.S. and possibly on a European exchange as well, by mid-to-late 2015.

ferrari-world-in-dubai

Abu Dhabi’s Ferrari World is the largest indoor park in the world

Ferrari revenues for 2013 were €2.335 billion, a 5% increase over the previous year. This increase occurred even though the company cut production by 5% to preserve brand exclusiveness. 2013 operating profit was €364 million and net profit was €264 million. For the first nine months of 2014, revenues reached €2.011 billion, an increase of €300 million or 17.5% over the previous year. This was mainly attributable to the contribution from the LaFerrari supercar model. Operating profit was €274 million.

The company is currently seeing solid growth in North America, its largest market comprising 29% of revenue. Europe continues to be a challenging market due to economic conditions, and sales in China have been on the decline. Strength in Japan and the Middle East have somewhat offset the weakness in other parts of the world.

To further develop the brand, Ferrari also has over 50 Ferrari Stores worldwide and an online channel that sell clothing and accessories. Both have seen volumes continue to grow. The company’s 2014-2018 plan calls for a full line of 8 and 12 cylinder high end performance street cars and a personalization program (where one can customize their own vehicle for an added cost) to add to profits. Ferrari also plans to continue major licensing agreements with video game companies Electronic Arts and Codemasters, and Ferrari World in Abu Dabi—the largest indoor park in the world. The plan also places emphasis on continued investment in sport activities. This is the one area that has hurt the brand, as Ferrari has failed to win a Formula 1 World Drivers Championship since 2007. Ferrari is also targeting margins in excess of 15%.

On the innovation front, development has continued on electric inverters and motors for application on hybrid electric and purely electric vehicles. The company has decided to create high end performance vehicles with socially conscious marketing and environmentally friendly features. Earlier this year Ferrari launched LaFerrari, their first hybrid. LaFerrari and the few other vehicles in the hybrid-sportscar class are nothing like your father’s Prius. The car has a 12-cylinder, 6-liter combustion engine and also boasts an electric engine that combine for 960 horsepower. The car does 0 to 60 mph in 2.9 seconds and has a top speed of 220 mph. It also set the record for the fastest lap time for a production Ferrari at the company’s Fiorano test track. But don’t run off to the dealership just yet—LaFerrari is the most expensive car the company has produced, retailing for an eye watering $1.4 million.

There is a wide variation in valuation for Ferrari with analysts’ estimates ranging from €3.5billion to €8 billion. FCA CEO Sergio Marchionne has said the value could be as much as €10 billion. The picture will become clearer as the company nears its IPO. In a filing last week, FCA announced that Ferrari would have to transfer €2.25 billion to FCA prior to the separation of the two companies, although it is still unclear how much debt Ferrari might hold. Ferrari has purposefully capped vehicle production at 7,000 cars per year. The company has said that volume could increase to 10,000 cars per year as the high net worth population expands in emerging markets. This could result in earnings before interest, taxes, depreciation and amortization (EBITDA) in excess of €1 billion. Luxury brands have sold for 11-13 times EBITDA in the past, so Marchionne’s valuation estimate might not be out of line. With the luxury goods industry in vogue right now and many cash rich emerging market companies on the prowl for European brands with strong pasts, Ferrari’s engine could be just getting revved up.