Coverage Initiation: Ferrari
We initiate coverage of Ferrari with a “Reduce” recommendation. Ferrari benefits from exclusivity, high-value sales and a high degree of customer loyalty. Amid risks for the volume-focused automakers and Chinese market uncertainties affecting luxury, Ferrari’s low price sensitivity and limited Chinese presence (<15% of sales) have of late appeared to make the stock a safe haven for investors. In view of the fact that the market’s expectations are now well ahead of the group’s mid-term outlook, in our view this would be an opportune moment to take profits.
| Target Price |
Credit Risk |
Fundamental Strength |
Sustainability Score |
Independent Board |
| €313.3 |
A |
10/10 |
6/10 |
No |
History and ownership structure
Ferrari, founded by Enzo Ferrari in 1939, is an Italian high-end sports car manufacturing company established in Maranello (Italy). The Ferrari brand’s heritage and exclusivity is closely associated with the success of its Formula 1 team “Scuderia Ferrari”, which represents the main pillar of the company’s value generation and retention strategy. Following the death of Enzo Ferrari in 1988, the Fiat group claimed 90% ownership of Ferrari, which remained a private entity of the group until 2015 and its separation from Fiat (now part of the Stellantis group). Ferrari was IPOed on the NYSE in October 2015 and the Milan stock exchange in January 2016. The group’s key shareholders remain Exor with a 24.4% stake and Piero Ferrari (son of Enzo Ferrari) with a 10.4% stake.
Sports cars but not only
Ferrari is not only involved in the sale of luxury cars (85% of its revenues) but also benefits from revenue generated through commercial activities such as F1, the sale of Ferrari clothes and Ferrari experiences (e.g., Ferrari Museum and track experiences). Although Ferrari generates a large proportion of its revenue from the sale of cars and spare parts (c. 85% in 2022), the firm has two additional independent segments, namely Engines (c. 5% of revenue) and Sponsorship, Commercial and Brand” (c. 10% of revenue). The Engines unit overwhelmingly supplies engines to Formula 1, while the former engine supply contract with Maserati expired in 2023. The Sponsorship Commercial and Brand segment encompasses F1 racing revenue and the Ferrari lifestyle brand (i.e. earnings generated through the sale of luxury goods, collectibles and experiences such as the Ferrari theme park in Abu Dhabi and the Ferrari Museum in Maranello). The company released its first fashion collection in 2021, which drove higher revenue generation for the overall segment in the subsequent years.
Single-country production and a high dependency on suppliers
Ferrari produces all its cars in Italy where we assume it to have production capacity of about 15k units (currently producing around 14k units). Unlike other low-volume competitors, Ferrari is highly dependent on the very few suppliers with whom it collaborates, some of which are single-source suppliers. This strategy can result in delivery delays.
Ferrari only has two production facilities, both located in Italy (Maranello and Modena). Given Ferrari theoretically approaching its maximum production capacity, it is reasonable to wonder if the company plans to increase production capacity in the future and how it is likely to do so. In the event that the establishment of a new production facility is needed, Ferrari will need to meet two key criteria. On the one hand the location of the facility, which might hurt the brand image (e.g., outside Italy or far from the old facilities) and, on the other, the fact that ineffective cost management could pressurise margins. Indeed, one of the main drivers that made the recent ramp-up in volumes successful has been the fact that Ferrari’s marginal investment required for each additional unit produced remained limited.
Unlike other low-volume competitors, Ferrari produces several of the main components of its engines and this translates into a high dependency on suppliers. Suppliers are key to Ferrari’s success and this is why the company has a strict selection process for its partners. Ferrari does not maintain long-term agreements with numerous suppliers and, since most of them are single source suppliers, the risk of delays and high supplier switching costs are ever present.
Company structure: outperforming in the industry’s bottom tier
Like many luxury peers and Porsche AG, Ferrari’s share capital includes significant shareholders who wield a disproportionate level of influence. While we do not consider this structure to be best-in-class, we acknowledge that the track record of these shareholders in terms of long-term and active investment is quite outstanding. Exor (the investment vehicle of the Agnelli family) and Piero Ferrari (the son of the Ferrari founder), hold a cumulative 35% of the shares and about 52% of Ferrari’s voting rights. Putting this into perspective: a minority shareholder in Porsche AG has no sway, whereas voting rights as a percentage of the free float are restricted to approximately 22% at Hermès, 36% at LVMH and 50% at Richemont. Additionally, note that Ferrari – like Exor’s other investments – exhibits a complex structure headquartered in the Netherlands, despite predominantly operating in Italy and having a dual listing on the Milan and New York stock exchanges.
Valuation
Our valuation model indicates a slight downside of 0.5%, primarily influenced by the DCF (-28%), which lowers the valuation. We expect Ferrari’s luxury brand positioning to compensate for the additional cost of innovation to ensure a successful transition towards vehicle electrification. Considering that the bulk of the company’s margin comes from customization features, Ferrari’s profitability profile is less at risk than those of the volume-driven OEMs.
The selection of the peer group was challenging due to the unique characteristics of Ferrari’s business model. In our eyes, Hermes is the only company that meets all the criteria as automotive peers lack the luxury pure player attribute, while overly-diversified luxury peers like LVMH lack both the “scarcity” and “unique brand” element. Finally, Tesla’s astronomical multiples driven by the company’s technological edge and potential dominance over the full EV market have not been included in our peer valuation.
For the full valuation, please contact us directly – sales@alphavalue.eu
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