Ferrari (NYSE: RACE) just presented its capital markets day. Even though we’re Ferrari fans here at the Lab, we think there’s more bad news than good. That said, any negatives the implications will be short-lived for a business that is built for the long haul.
Starting with the negative comments, Wall Street analysts are concerned about a lower return on investment compared to historical levels. This is due to higher investment assumptions ahead of the launch of an all-electric Ferrari in 2025. Investors expect structurally higher investments which will dampen returns, which are expected to remain below 40% at the ROIC level. . Capitalizing on more research and development costs, Rossa’s balance sheet has so far been shielded from the impact, but increased depreciation will inhibit operating leverage and could mean disappointing results in mid-term targets . Return on investment for the Maranello house fell to 35% from 53% in 2017 following larger investments to finance new models and electric technology. In addition, investors’ attention is focused on the medium-term free cash flow objective with higher R&D capitalization (39% today against 25% historical), which has accumulated 200 basis points at the group’s margins since 2017. Also to add to the criticism, Ferrari stock trades at 25x EV/EBIT, in line with luxury companies, but Ferrari’s earnings fell more in 2009 than its luxury rivals.
Our point of view
Ferrari has a solid track record and has delivered great results since the last day of capital market. As always, the Maranello house builds and transfers the know-how of Formula 1 to sports cars. The company has also taken the necessary steps towards electrification in terms of human capital thanks to the direct arrival of the new CEO at STMicroelectronics (STM) (OTCPK:STMEF), the 11th largest semiconductor company with a position of leader in the MEMS market.
Ferrari’s ultra-luxury business model depends on limited supply, exclusivity and long waiting lists. Compared to 2009 results, Ferrari is a different business – more profitable and better run. As a result, demand is expected to hold even under a bearish economic scenario. After participating in the CMD, here is below, on the commercial level, our main key point:
- Different Ferraris for different Ferraristi: more product offerings;
- Improve profitability through its uniqueness and more customization.
According to Bloomberg, Ferrari has completed an acquisition to buy the property next to its Maranello plant aimed at building a third production site dedicated to hybrids/EVs (5k cars per year). The increase in CAPEX for hybrid/EV productions has been the main concern of investors in recent years. No CAPEX surge was confirmed in the CMD call. Ferrari currently produces 12,000 cars per year, but has additional capacity to produce 15,000 cars per year with no additional CAPEX needed. The FCF target has also been confirmed, we do not see from the right the downward revision of around 10% of the EBIT and free cash flow currently estimated by the 2023 consensus. Therefore, we reiterate our d purchase confirming an EBITDA of 2 billion euros in our 2023 forecasts with a multiple of 23x.