Description
All figures in EUR
Ferrari N.V., (“RACE”), is a mispriced spinoff that is a luxury good manufacturer (insulated sales) growing top line and bottom line valued at under 11.0X 2016 EV / EBITDA. The company is led by a proven executive, pays a modest dividend, and is levered at under 1.0X.
First and foremost to understand the pitch, we must agree on the fact that classic cars are an investment. This is not a thesis on the merits or demerits of whether it is a good investment, but it is one nonetheless. There is a market for these products that is currently underserved.
The Company has cleverly limited production and maintained exclusivity in order to build up their own backlog and set a floor on margin. This is a careful game, but the CEO has maintained that he can grow production by at least 25% without hurting the overall appeal of the product. (1)
This vision originally announced in 2014 is becoming a reality:
| |
2014
|
2015
|
Q1-15
|
Q2-15
|
Q1-16
|
Q2-16
|
LTM
|
|
shipments
|
7,255
|
7,664
|
1,635
|
2,059
|
1,882
|
2,214
|
8,066
|
|
yoy
|
|
5.6%
|
|
|
15.1%
|
7.5%
|
5.2%
|
|
rev (€M)
|
2,762
|
2,854
|
621
|
766
|
675
|
811
|
2,953
|
|
yoy
|
|
3.3%
|
|
|
8.7%
|
5.9%
|
3.5%
|
|
adj ebit (€M)
|
404
|
473
|
100
|
124
|
121
|
156
|
526
|
|
yoy
|
|
17.1%
|
|
|
21.0%
|
25.8%
|
11.2%
|
|
adj ebitda (€M)
|
693
|
748
|
160
|
194
|
178
|
217
|
789
|
|
yoy
|
|
7.9%
|
|
|
11.3%
|
11.9%
|
5.5%
|
*LTM as of June 30, 2016 and compared against 2015
Q2 – 2016 Gudiance:
And we are confirming our full year guidance as follows: shipments at approximately 8,000 units including our supercars; net revenues greater than €3 billion; adjusted EBITDA greater or equal to €800 million; and net debt lower or equal to €730 million.
Sergio is clearly sandbagging; they are already at their 2016 guidance in terms of all of their projected metrics and they have yet to release the 2nd half of the year
When asked on the most recent conference call about production hitting 9,200, Sergio had the following vague answer:
I think we'll stick to the forecast that we gave you in the past. There's no momentous change. I think we need to grow the brand in total consistent parallel fashion with the growth of the market. (…)The potentially available population of customers to Ferrari is a growing population. And it's global and I think that we have the global footprint in terms of distribution to service that customer base. And I think that's important for us to go forward. I think it's a key element in the development of our portfolio. I think we need to be able to tweak these positive element market conditions and I think that we have done a number of things here, and you will see hopefully and as we keep on revealing these products, that we have understood that requirement. And I think you'll see numbers growing accordingly.
He goes on further to discuss margin:
Well. Somebody asked me the question on this thing and the consistent question is what are we doing on pricing? And I think the right - the short answer is that we're doing everything we can and we have started moving price on some of our vehicles now, and we have done it in an intelligent way to make sure that we give advanced warning to our customers. So it'll take some time to work its way through but the pricing actions are in place and we'll continue to take them as we see opportunity arise.
This is all code for: I’ve done this before, and I’ll do it again. And our customers are price agnostic, and I have to grow earnings so why would I not raise the prices on them?
To further elaborate, when asked about whether or not he’s saturating the market with limited edition vehicles, Sergio went on:
I have noticed certainly in terms of the approach that we have taken, we have noticed no level of saturation or discomfort with the numbers that we've pointed out
Balancing price and demand is not easy, but we are in good hands.
Sergio Marchionne
At its core, this is a bet on Sergio. In May 2016, Sergio was appointed CEO. He replaced Amedeo Felisa, who had been with Ferrari for 26 years
He spearheaded the merger between Chrysler and Fiat, and has grown US sales for 70 straight months. The spinoff was his baby, and his path appears to be laid so now its just down to execution. To a certain extent, this eliminates some of the key employee risk that is associated with this trade.
Notes:
(1) Mr. Marchionne has hinted that yearly production could go to 10,000 vehicles without denting the $250,000 average sale price for Ferrari cars or the company’s bottom line.
http://www.wsj.com/articles/will-ferrari-keep-its-scarcity-premium-1419447955
Risks
Currency trade
F1 results
Key employee risk / existing responsibilities at Fiat
I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.
Catalyst
Quarterly results
-new products in its largest market, North America (GTC4Lusso, FF), Electric powertrain, sponsorship