Ferrari is now quoted even on Milan Stock Exchange, after the debut on Wall Street in 2015. What will do the Italian Company, already leader in the racing world and now maybe on the stock market?
2016 is not started in the best ways for the financial market. Actually, even the Chicago PMI data weren’t a good omen, but by now we are used to markets that could overcome everything and almost able to ignore the negative macroeconomics news.
And then it came the data on PMI Chinese manufacturing, worse than expected. The result was there for all operators to see. Asian indices in deep red, with a flurry of suspensions on the Chinese list to prevent that -7%, registered at the closure of the market could have been even worse. Europe couldn’t open with great enthusiasm the first trading session.
And, indeed, even the Italian FTSEMIB, as the German DAX as well and the other European indices, immediately were negative.
And what about Wall Street?
Again, things haven’t gone well. The opening of the Dow Johns was one of the worst in the last 100 years. Just once, in 1922, we have witnesses a worse opening (-2.30%).
And when all this happened? In conjunction with one of the sessions which were to enter in the history of the Italian stock exchange, i.e. the day in which Ferrari was listed on Milan Stock Exchange.
The operation in itself had already been seen on the American list, on October 21th when the 10% of the company was quoted on Wall Street. On this website I have already talked about the evaluation of that operation, but obviously you need to do a “refresh” in order to understand the current state of things.
For a start, 2016 led to a “share split”, with which the former FCA shareholders had Ferrari shares, thanks precisely to the spin-off.
The ratio of assignment was equal to n. 1 Ferrari N.V. share for every share FCA. This operation should therefore be considered as almost neutral for a FCA shareholder, because he would then have directly a new Ferrari shareholding, but at the same time with a FCA value considerably decreased.
The deeply negative trading session then has complicated all the calculation and logic.
But let us go to the point.
Ferrari is a good opportunity to invest or does it risk of being a false rumour?
First of all let me find fault with FCA and Exor shareholders, the holding company of the group.
Exor and Piero Ferrari have signed a shareholders’ agreement related to their Ferrari quotas (Exor 23.5% and P. Ferrari 10% i.e. 33.4% and 15.4% of the voting rights).
Their purpose is simple: trying to maximize Ferrari brand, which theoretically can only bring benefits to both FCA and Exor shareholders.
But as you know in the stock market the theory has no value, what matters is what happens in the markets.
FERRARI: TREND ON WALL STREET
But, what will be the future trend of the Ferrari stock?
Certainties in financial world don’t exist, what we can do is trying to draw a picture as realistic as possible.
This picture reiterates what I have already expressed in the past. Ferrari is a luxury companies really unique and special: a brand which has great reputation (the power of the brand is not to be underestimated), great exclusivity (status symbol) as happens infrequently excellent resale value.
In addition it is a brand that, for obvious reasons, has attracted the particular attention and interest of HNWI customers (high net worth individuals), i.e. very rich, which also guarantees a good stability of purchasers as well as customers long-term retention.
Also customization program at the highest margin (15% of expected sales to grow further) ensure revenues much higher than average, and not a small thing, more often, the release of some models are “sold out “ even before production begins. So, the exclusivity of Ferrari makes the company of Maranello a potential star of the catalogue.
However of course there are also negative elements.
The CAPEX (CAPital EXpenditure) value is high, but it is a necessary condition for a brand like Ferrari. There are imponderable factors that may affect the corporate results.
Not even the business cycle (the HNWI costumers are particular) but specially macroeconomic conjunctures as the trend in exchange rates.
FERRARI: TREND OF THE FIRST DAY OF QUOTATION ON THE MILAN STOCK EXCHANGE
In short: on balance Ferrari continues to be a very interesting share.
Margins are high, the company’s forecasts for the coming year are very trustworthy and transparent (without straying into details to not bore you).
Making a calculation using the DFCF (Discounted Free Cash Flow) and clearly comparing Ferrari to major global competitors, you get a target price that even goes beyond 50$.
And if now Ferrari “skids” on the stock market it is quite normal, due not only to the slack market but also for the generous placement of these days.
Once the situation will stabilize, certainly it will deserve the investor’s attention.
Translated by Federica Izzo