Ferrari N.V. RACE
August 19, 2016 - 2:59pm EST by
rjm59
2016 2017
Price: 48.21 EPS 1.91 0
Shares Out. (in M): 189 P/E 25.2 0
Market Cap (in $M): 9,110 P/FCF 0 0
Net Debt (in $M): 763 EBIT 0 0
TEV ($): 9,873 TEV/EBIT 0 0

Sign up for free guest access to view investment idea with a 45 days delay.

  • Automobiles
  • Luxury
  • Spin-Off
  • Outsider-type CEO
 

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

    sort by    

    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

      Back to top