Bentley Loss May Induce Caution In Would-Be Premium Floats.
“Our analysis of the business results of the premium and luxury manufacturers clearly shows even here money does not grow on trees”
Volvo Cars is about to float on the stock market, closely followed probably by Aston Martin, but investors, excited by massive profits at Italian sports carmaker Ferrari, should look at the latest results from traditional luxury manufacturer Bentley before assuming the premium car market means easy money.
According to a report from the Center for Automotive Research (CAR) at the University of Duisberg-Essen, Ferrari, which floated on the stock market over 2 years ago, made an amazing nearly €70,000 per car in the first 6 months of 2018 for a profit margin of 24.6 per cent.
Second was Porsche with an 18.4 per cent margin, while BMW, Mercedes, and Audi all notched up profits close to 9 per cent. Volvo managed a creditable 7.9 per cent while British based and Indian owned Jaguar Land Rover barely scraped into the black with 1.7 per cent.
Tesla lost €11,000 for every car sold, according to CAR, while British-based Bentley lost €17,500 for each luxury limousine oozing off the forecourt.
Bentley, Porsche and Audi are owned by Volkswagen.
Volvo Cars, bought by Zhejiang Geely Holding of China for $1.8 billion from Ford in 2010, has been preparing to float for some time. Last month Bloomberg reported that investors would value Volvo Cars at between $12 billion to $16 billion, way below the $30 billion Geely was holding out for. But in August, the Financial Times said Geely had persuaded investors that a true value was $30 billion, quoting “people familiar with the situation”. Geely hasn’t confirmed this.
This would value Volvo Cars higher than BMW or Mercedes’ parent Daimler.
Aston Martin’s flotation is expected soon too, valued at between €4.6 billion and €5.7 billion. Berenberg Bank of Hamburg says Aston Martin isn’t close to Ferrari.
“Aston Martin lags significantly behind Ferrari on nearly every quality metric, particularly on critical measures like capital intensity, cash generation and contribution margin,” Berenberg Bank analyst Fei Teng said in a report.
Teng described Aston Martin’s business model as flawed, spending too much capital developing cars that are priced too low, while not creating enough scale.
The mooted €4.6 billion to €5.7 billion valuation implies a Ferrari value of more than €240 a share, according to Teng.
Ferrari shares currently trade at just over €110.
Ferrari shares meanwhile have been under pressure lately after the death of Fiat Chrysler Automobiles CEO Sergio Marchionne, who had led Ferrari too. Ferrari’s new CEO Louis Camilleri, at a recent press conference, had described ambitious €2 billion EBITDA (earnings before interest, taxation, depreciation and amortization) profit targets for 2022 for Ferrari profits as “aspirational”. The use of this word led some investors to worry that the plan for Ferrari was under pressure, but most analysts don’t seem concerned.
Citi Research is comfortable with the new CEO and has a target share price of €125.
Morgan Stanley said it has “great confidence” in the new management, with a share price target of €120.
CAR director Professor Ferdinand Dudenhoeffer points out that investors shouldn’t assume a premium name means easy profits.
“Our analysis of the business results of the premium and luxury manufacturers clearly shows that even here money does not grow on trees. Scale is important, as Porsche and BMW show. Scale is not everything, as Bentley shows. Ferrari has become the successful model at the high end,” Dudenhoeffer said.
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