Ferrari Stock Price Slips As Profit Increase Fails To Excite.
“Does Ferrari even need the Portofino?”
Italian luxury sports carmaker Ferrari reported improved profits in its 3rd quarter but the rate of progress was not spectacular enough for some and the stock price slid nearly 3 per cent on the day of the announcement.
Profits were helped by an 11 per cent jump in the sale of V-8 models led by the Portofino, but these models don’t have the massive profit margins of special vehicles like the V-12 812 Monza, unveiled at the Paris auto show in October and which goes on sale later next year.
In the third quarter, earnings before interest, tax, depreciation and amortization (EBITDA) rose to €278 million from €266 million in the same period last year. Sales were steady at €954 million.
Ferrari’s stock market valuation is much higher than lesser mass market breeds, so investors expect to see this reflected in the financial results. In the 3rd quarter Ferrari’s average revenue per sale fell 8 per cent to €272,000 thanks mainly to the Portofino.
“Does Ferrari even need the Portofino,” asked Bernstein Research analyst Max Warburton.
“A single 812 Monza will likely make the same profit as 20 Portofinos. Might Ferrari one day consider culling the “cheap” cars and heading upmarket, permanently,” Warburton said.
Citi Research liked the results.
“We reaffirm our Buy rating on the stock because of –
- Its exceptional pricing power, enabling it to navigate trade spats and the price for electrification.
- The as yet-untapped opportunity to leverage its brand to grow non-car profits.
- Its ‘small volume manufacturer’ status gives it a level of flexibility not afforded to other manufacturers,” Citi Research analyst
Raghav Gupta-Chaudhary said in a report.
Ferrari’s small volume means it can often avoid harsh fuel economy rules which mass carmakers face.
No worries from investment researcher Evercore ISI either.
“Operating margin remained flat in what was another healthy quarter performance,” Evercore ISI analyst George Galliers said.
Investment bank UBS also liked what it saw.
“We rate Ferrari Buy as we believe the full scope of its earnings power mid-term is underappreciated by the market. In addition we like Ferrari’s defensive positioning given its customer base made up primarily of loyal, high net worth individuals supported by the order book which was described as strong (by Ferrari),” UBS analyst Helen Brand said.
Bernstein Research’s Warburton sees continuing profits for Ferrari, but worries that the stock price might be too high.
“The impact of the Portofino is likely to peak in the first half of 2019. Thereafter mix should improve, thanks to the 812 Monza and other higher-priced cars that will be unveiled soon,” Warburton said.
2 new launches next year
“(CEO Louis) Camilleri announced that there will be 2 launches in the first half of next year – we believe one will be the mid-engine V12 Lamborghini Aventador rival. (Stock market) valuation still looks incredibly generous. Ferrari is a beautiful company and is likely to grow profits each year for many years to come. The risk of a serious miss looks low. But with huge multiples and an EV (enterprise value) that is 70 per cent that of BMW), we continue to struggle with its valuation,” Warburton said.
Ferrari announced at an investors’ meeting in September that it will launch an SUV, called the Purosangue, by 2022. Between next year and 2002, there will be 15 new model launches. 60 per cent of all cars sold by 2022 will be gasoline electric hybrid.
Ferrari also unveiled some special editions, like the retro-styled Monza It will also introduce vehicles with smaller V-6 engines. Camilleri told the investors meeting the new 2022 target profit target was now a range between €1.8 billion and €2 billion.
Ferrari sold 8,398 vehicles globally in 2017, led by 12-cylinder models like the GTC4Lusso and the 812 Superfast, and has said this will rise to more than 9,000 in 2018. Investors already expect Ferrari to aim for annual sales of 15,000 in the medium term.
The launch of the Purosangue (which means thoroughbred in Italian) SUV was pushed back by about 2 years. The Purosangue will compete with the Lamborghini Urus, Rolls Royce Cullinan and the Bentley Bentayga.