Ferrari Share Action Reflects Investor Hesitancy, But Some See Long-Term Success

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Investors in Italian supercar maker Ferrari have been on a wild ride this year as the price of its shares traces a vigorous up and down “V” pattern, with a definite upward momentum.

This week Ferrari announced it had tripled profits in the 2nd quarter of 2021, with adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) hitting €386 million ($457 million) up from €124 million ($147 million) in the same period last year. Sales almost doubled to 2,685.

Ferrari reiterated its previous long-term profit forecast of an increase to between €1.8 to €2 billion in 2023. It expected to reach the top end of its €1.45 to €1.5 billion forecast for 2021. The appointment in June of a new CEO, semiconductor expert Benedetto Vigna, led to a spike in the shares, but this was reversed by worries about how much long-term money would have to be spent turning its extrovert gas guzzlers into modest electric ones.

Since a low of about €155 in March there have been peaks and troughs as the shares reached €178.25 Wednesday, up 1.5% on the day. This compares with a peak of close to €190 late last year, and €184 in July. Arguments about the value of Ferrari shares centre on its claim to be a luxury goods manufacturer, not a mere automotive, metal- banging operation. More a luxury goods player like Hermes, LVMH, Prada, Ferragamo, Moncler or Richemont, rather than a GM or Ford.

Investment bank Morgan Stanley MS has published a report on Ferrari which points to its belief in its long-term success, predicting net income reaching around €1.85 billion ($2.2 billion) by 2029/2030, with a 25% EBIT (earnings before interest and tax) margin compared with 24% currently, annual sales of 20,000 compared with about 11,000 now, with an average selling price per car of about €375,000 ($444,000) compared with €325,000 now ($385,000).

Morgan Stanley said it based this view on Ferrari’s model segment expansion plans, with the Purosangue SUV appearing in 2022, growth in China and Asian-Pacific, new models and technologies, still including internal combustion engines, hybrids and electric cars, and expansion outside of car-making including Formula 1 racing, theme parks and luxury brand extensions.

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“We think scarcity, desirability and brand values around performance and luxury is the Ferrari moat,” the report said.

“These factors make it hard for a competitor to replicate overnight. As long as Ferrari maintains brand relevance, we are hopeful of its success to BEVs (battery electric vehicles). In our view, buying a Ferrari today is not so much about “the sound of the engine” or the “performance” in itself, but it is a totality of factors that drives customers to wanting the elements that a Ferrari possesses: scarcity, desirability, connotations of luxury and performance stemming from Formula 1 racing pedigree and the Italian exquisite design and engineering,” the report said.

Not everyone thinks Ferrari has such a golden future.

Last month, Center for Automotive Research (CAR) director Professor Ferdinand Dudenhoeffer said Ferrari, valued on stock markets at the time at about €32 billion ($38 billion) was hugely overvalued by a factor of nearly 3 times.

In June, Goldman Sachs GS switched its investment recommendation to “sell” from “buy”, citing among other things the huge expense of embracing electric power, and long term difficulties replicating its big profit margins.

Another investment bank UBS said Tuesday Ferrari’s near-term prospects were strong with a record order book and new customers, which bodes well for the long-term. After Ferrari’s conference call with analysts, UBS reported that new customers were younger and accounted for 60% of new orders, while female Ferrari owners had doubled in the last 4 years. Electrification was said to be a plus, and UBS quoted Chairman and interim CEO John Elkann as sounding excited about the opportunity for Ferrari to demonstrate its excellence and its innovation capabilities.

Reuters Breaking Views column pointed to the challenge Ferrari will face as the European Commission, the executive arm of the European union, proposed to ban the sale of new ICE vehicles by 2035 as part of its plan to cut greenhouse gas emissions.

“Brussels’ new push sounds ominous for the high-performance engines that power beloved models built by Ferrari, (VW’s) Lamborghini and (Stellantis’) Maserati. Without substantial and rapid technological innovation in green fuels, electric vehicles look like the only option to meet the EU’s ambition,” Breaking Views columnist Lisa Jucca said.  

New CEO Vigna starts work at Ferrari in September. How to handle 2035 might well be job one.

In 2020, Ferrari earnings before interest, tax, depreciation and amortization (EBITDA) fell 10% to €1.14 billion ($1.4 billion) compared with 2019. Sales slid back under 10,000 in 2020, after the factory at Maranello was shut for 7 weeks because of the coronavirus. In 2019, Ferrari sold 10,131 vehicles, up 9.5% on the previous year.