Ferrari Reports Higher Profits, Raises Target For The Year.
“At some point, perhaps one of Ferrari’s core models will fall short. But until that (distant?) day, the music will play on”
Italian luxury sports-car maker Ferrari reported strong financial results and investors, despite having misgivings about a car company with a high, luxury-sector share value, were hard pressed Friday to find any negatives.
Ferrari, spun off from Fiat Chrysler Automobiles 3 years ago, said its earnings before interest, tax, depreciation and amortization (EBITDA) rose 6% in the fourth quarter to 274 million euros ($314 million) compared with the same period of 2017, while sales increase 1% to 845 million ($969 million).
For 2019, Ferrari forecast EBITDA would rise about 10% to between 1.2 and 1.25 billion euros ($1.4 billion) compared with 2018.
Bernstein Research analyst Max Warburton led the chorus of approval.
Warburton conceded that the Ferrari share price was relatively expensive, but didn’t see any chance it might disappoint investors and fail to deliver on its promises.
“The world knows it’s expensive. It’s no secret. And as long as Ferrari can continue to meet or exceed expectations, it will likely stay expensive. One day, appetite amongst rich car enthusiasts for Ferrari’s super high-end cars like the 812 Monza will be sated. At some point, perhaps one of Ferrari’s core models will fall short. But until that (distant?) day, the music will play on,” Warburton said.
Warburton pointed out that Ferrari’s forecast for 34% EBITDA margins for 2019 compared with last September’s forecast that this would only be reached in 2020.
There are some potential problems on the horizon as Ferrari, like everybody else, will be forced to electrify its range at huge expense.
Citi Research doesn’t see this being as much of a long-term problem for this unique brand.
“(Electrification) will weigh on near term profitability and FCF (free cash flow) generation. This is a temporary phenomenon, and while other carmakers face the prospect of having to offer EVs (electric vehicles) at a loss, we are confident Ferrari will be able to charge a premium, thereby quickly recouping its investment,” Citi Research analyst Raghav Gupta-Chaudhary said.
Ferrari is expected to launch two new models in the first half of this year, including a rival to the mid-engine V12 Lamborghini Aventador. Ferrari announced at an investors’ meeting last September that it will launch an SUV, called the Purosangue, by 2022. The Purosangue will compete with the Lamborghini Urus, Rolls Royce Cullinan and the Bentley Bentayga.
Between 2019 and 2002, there will be 15 new model launches. 60% of all cars sold by 2022 will be gasoline-electric hybrid. Ferrari will also introduce vehicles with smaller V-6 engines.
The investor’s meeting was told the new 2022 target profit target was now a range between €1.8 billion and €2 billion ($2.1 billion and $2.3 billion).
If investors start to wonder again if Ferrari shares are overvalued, they might be relieved to know that late this year the company plans to unveil what it calls its non-car business strategy, which will presumably seek to leverage the Ferrari brand name in areas outside the manufacturer of sports cars into life-style.
“One area that Ferrari is yet to fully address is the non-car business opportunity. There were scant details, with the strategy still being finalized, but we were left with the impression (by Ferrari) that management is being extremely thorough in readying the business for a non-car revenue offensive. We expect an announcement on the strategy post the summer,” Citi Research’s Gupta-Chaudhary said.
Ferrari shares jumped to 113.15 euros after the results from 96.6 the day before, and closed Friday at 110.75.