Ferrari Defies Doubters With Fat Profits As Sales Rise.
Worries Float Was Overpriced A Dim Memory.
“Ferrari is likely heading for 15,000 units. Ferrari is going to be a much bigger company than had been assumed even 12 months ago”
Investors worried that Ferrari shares were overvalued when it was first floated from Fiat Chrysler Automobiles just over 2 years ago, but the share price has accelerated as higher sales were accompanied by ever fatter profit margins.
In early May Ferrari reported a 13% rise in first quarter earnings before interest, tax depreciation and amortization (EBITDA) of $326 million, compared with the same period of 2017, and profit margins of a hefty 32.8%, up from 29.5%.
Ferrari shares powered ahead again to 118.7 euros after the results were announced, that’s a 60% gain from the low in July 2017. Since then the shares have slipped slightly, but investors are piling back in as forecasts for sales and earnings defy gravity.
Bernstein Research expects this defiance to continue
“Ferrari – even with its fantastic margins is a very expensive stock. It’s on over 30 times 2018 earnings and over 500% of sales. But we also need to recognize that this company keeps growing margins, keeps beating guidance and keeps announcing new product decisions that are almost guaranteed to drive growth higher to levels we never envisaged even a year ago,” Bernstein analyst Max Warburton said.
Ferrari now plans to launch an SUV in 2021.
Ferrari sold 8,398 vehicles in 2017, led by 12-cylinder models like the GTC4Lusso and the 812 Superfast, and expects this to rise to more than 9,000 in 2018. At the Geneva Car Show in March Ferrari launched the 488 Pista with a 710-hp V8 engine. This successor to the 360 Challenge Stradale, 430 Scuderia and 458 Speciale will blast from 0-60 mph in 2.7 seconds and on to 211 mph.
Not worrying now
Investors have been wary of plans for Ferrari to raise sales too quickly worrying this might dilute the exclusive brand. When Ferrari was floated, analysts said that as a car maker, it was valued unrealistically highly, as though it was more like a luxury goods maker. But its value on the stock market has powered ahead, and they are not worrying so much now.
“The jump in EBITDA promised for 2022 – €2 billion is huge. But it’s also believable. The question is not whether Ferrari can do it – the question is how it does it, and whether there is any collateral damage to the brand,” Warburton said
“Ferrari is likely heading for 15,000 units. Ferrari is going to be a much bigger company than we had assumed even 12 months ago,” he said.
Investment bank UBS was also mightily impressed, saying Ferrari’s long-term earnings power is under-appreciated.
“The significant earnings opportunity for this brand was demonstrated again in the first quarter with the EBITDA margin,” said UBS analyst Helen Brand.
“Short term volumes are sold out for most models in 2018 and management hopes to maintain positive price/mix through the year. This is ahead of our and market expectations for negative mix in the second half as volumes of LaFerrari Aperta roll off. This positive outlook will continue to drive margin expansion,” Brand said.
Ever higher?
Bernstein’s Warburton, despite all the good news, hesitates to predict an even higher share price.
“The stock performance has been epic. Even if Ferrari is set to double earnings, surely that’s priced in at the current market capitalisation,” he said.
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