Investors Expect Ferrari To Meet Its Challenging Profit Target.
“Ferrari’s guide for a doubling of profit by 2022 will require impeccable execution”
Ferrari, the Italian luxury sports car maker, delighted investors with its prediction profit will double by 2022 as it reported earnings for 2017 way ahead of its current plan.
Ferrari, spun-off from Fiat Chrysler Automobiles in 2015, said EBITDA (earnings before interest, tax, depreciation and amortization) profits in 2017 rose 18% to 1.04 billion euros ($1.3 billion), breaching 1 billion euros ($1.2 billion) two years earlier than it predicted when it left FCA.
Ferrari shares ended the week at 103.80 euros, close to the peak of 104.40 set on November 2, and compared with 60.00 euros a year ago.
Ferrari said it plans to double core earnings to 2 billion euros ($2.5 billion) by 2022 and be debt free by 2021. CEO Sergio Marchionne is set to retire from leading FCA at the end of this year, but is scheduled to remain at Ferrari until 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.
Investors have been wary of plans for Ferrari to raise sales too quickly worrying this might dilute the exclusive brand. Plans to launch an SUV by 2021 increased these doubts, although Marchionne has said this will be accomplished in a style unique to Ferrari.
When Ferrari was floated, analysts worried that as a car maker, it was valued unrealistically highly, as though it was more like a luxury goods maker. But as its value on the stock market has powered ahead, they are not worrying so much now.
Bernstein Research analyst Max Warburton said Ferrari appears over-valued by normal yardsticks.
“Many investors don’t seem bothered by this – they see Ferrari as a unique asset, ignore conventional valuation metrics and have driven the stock up to its current levels regardless,” Warburton said.
“The 2022 target is far beyond anything we are modelling, even after the SUV launches. Clearly this company is planning much bigger growth than we realized,” he said.
Morgan Stanley analyst Adam Jonas was a bit more cautious.
“Ferrari’s guide for a doubling of profit by 2022 will require impeccable execution on the SUV, step-function growth in China, a recovering U.S. dollar, and pricing that can offset sharply high costs for electrification. CEO Marchionne’s street creed means the market prices in perfection now,” Jonas said.
Morgan Stanley rates the Ferrari stock “underweight”.
Citi Research is a believer.
Citi Research analyst Michael Tyndall said since the flotation, Ferrari has delivered earnings consistently ahead of expectations.
“2018 is likely to be a more challenging year given the run-out of key models and the strong euro, but management still sees scope for at least mid-single digit profit growth. We suspect this is conservative,” Tyndall said.
The 2022 targets for profit and cash flow are ambitious but do-able.
“These targets are 93% and 365% ahead of the respective 2017 figures. It might look a stretch, but we think they can achieve it. We are buyers,” Tyndall said.
Meanwhile Ferrari is expected to unveil a new model at the Geneva Car Show next month – a lightweight, track-centred version of the 488 V8 mid-engine machine, with power increased to 700 hp from 661. This year Ferrari will begin shipping its new entry level model, the Portofino, which replaced the California T.