Ferrari Expects Higher Profits, While Purosangue Will Broaden Appeal.
“We believe Ferrari’s multiple is more sustainable during recession when its safe-haven status shines brightest. Investors are willing to pay to secure some portfolio stability”
Despite fears of a global recession, the super-rich are still demanding Ferrari stamps out more of its pricey, growling 8 and 12-cylinder sports cars as fast as it can.
Well, probably not quite as fast as it can. That might run the risk of flooding the market and undermining its prices. The trick is (and Ferrari seems to have perfected it); always keep supply just behind demand. That way prices and profits can edge gradually higher, and the share price can reflect the company’s status as a luxury goods player alongside massive profit makers like Hermes, LVMH, Prada, Ferragamo, Moncler or Richemont. This is no humdrum, metal basher like a Volkswagen or Stellantis.
Ferrari also reminded investors its new SUV, the Purosangue (thoroughbred), will go on sale this year likely in the 2nd quarter, along with new plug-in hybrid models.
Ferrari’s latest financial report shows 4th quarter adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) rose 18% to €469 million ($503 million) compared with the same period of 2021. Ferrari forecast EBITDA will rise to between €2.13 billion ($2.29 billion) to €2.18 billion in 2023, up from last year’s €1.77 billion ($1.9 billion). Full-year profits were slightly better than the company’s forecast of between €1.7 to €1.74 billion.
Investment researcher Bernstein said there is little reason to doubt Ferrari’s ability to deliver on guidance this year, “bar war, pestilence and perhaps a natural gas ‘famine”.
But it was a bit cautious about the longer term.
“We believe Ferrari’s multiple is more sustainable during a recession, when its safe-haven status shines brightest. Investors are willing to pay to secure some semblance of portfolio stability. Beyond 2023, as recession risk clears, we are increasingly more cautious. Investors may seek higher returns elsewhere, while lower EPS (earnings per share) growth beyond 2024 risks a reset on multiple expectations,” Bernstein analyst Daniel Roeska said.
Investment bank UBS said Ferrari’s performance had ticked all the right boxes to keep investors happy.
“As a result, mid-term targets look increasingly conservative. In an uncertain macro we see Ferrari as a sound investment underpinned by record demand and strong pricing power, leading to high earnings visibility. It screens favorably both versus luxury with its defensiveness and margin upside and versus autos where concerns around demand are increasing and margins are under pressure,” UBS said in a report.
UBS added these factors to back up its thesis –
- Orders at an all-time high, covering well into 2024.
- Purosangue demand “extraordinarily high” (according to CEO Benedetto Vigna), well above expectations.
- Strong demand seen in all regions.
- 4 new launches expected in 2023.
Orwa Mohamad, analyst at global primary research firm Third Bridge described Ferrari’s performance as strong, with attractive profit margins and one of the most significant volume increases over the last 10-12 years.
He wasn’t so sure about the growth of physical volumes, but the Purosangue would make a big impact.
“Although Ferrari’s sports car volumes are unlikely to grow again in 2023, this is a genuinely exciting year for Ferrari with the long-awaited V12 Purosangue hitting showrooms – extending the brand to a wider uber-rich customer base. Ferrari’s new CEO (Vigna) needs to prove himself over the next 18 months and fully leverage the launch of their new SUV and hypercar. How Mr. Vigna brings to market new technology will define the brand for a new generation.”
First electric vehicle, the Purosangue?
Ferrari will unveil its first all-electric vehicle in 2025, and this will be a challenging new venture for the company.
“Moving into EV essentially removes a cornerstone of Ferrari’s success. That’s one reason why Ferrari isn’t in any rush to move to full EV. Their first electric model may well end up being the Purosangue. This could be used as a gateway to drive growth in the Chinese market, in which Lamborghini and Bentley are arguably taking the lead,” Mohamad said.
Ferrari has said it expects full-electric cars will make up 5% of sales in 2025 and 40% in 2030. Gasoline/electric hybrids will account for 40% in 2030 with the rest still internal combustion engines (ICE).
Ferrari will spend €4.4 billion ($4.72 billion) to develop all-electric and plug-in hybrid electric cars to make up 60% of its sales by 2026. At the same time, Ferrari’s annual profits as measured by EBITDA (earnings before interest, tax depreciation and amortization) will accelerate to as much as €2.7 billion ($2.89 billion) in 2026 from €1.5 billion ($1.61 billion) last year.
Ferrari sells limited-edition supercars like the Monza SP1 and SP2 for around $1.85 million each. The Purosangue will compete with the Lamborghini Urus, Bentley Bentayga and Aston Martin DBX.
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