Company Overview
Ferrari is a leading luxury supercar manufacturer headquartered in Italy, which has been producing high-performance sports cars and race cars for over 70 years. Its key business segments include (i) car sales (85% of FY22 revenue); (ii) the lifestyle segment (12% of revenue), which includes sponsorship agreements, world championship commercial revenues, general brand merchandise, and licensing; and (iii) rentals to Maserati/F1 teams (3% of revenue). In 2022, Ferrari sold a record-breaking 13.2k cars (€286k ASP), up from its 2021 levels of 11.1k (€272k), with the EMEA representing 45% of FY22 car shipments, America 26%, Greater China 12%, and the rest of APAC 17%.
Investment Overview
Backed by strong brand equity and exclusivity, with highest margins seen in industry due to its premium pricing. Ferrari’s key competitive strengths include its strong brand equity and reputation, exclusivity of its products, engineering and performance excellence, bespoke customer offerings, strong lifestyle brands, significant presence in the car racing industry, and more. Most importantly, the Ferrari brand is built on exclusivity, as seen from its high average selling prices (ASPs), limited production capacity of 15k, and targeted marketing strategies, which help generate among the highest EBITDA margins seen in the industry at c.35% (versus its peers’ 10%-20%).
4Q23 results a beat; FY24F guidance within expectations with firm orderbook/earnings visibility through 2026. 4Q23 adjusted EPS of EUR1.62 (-11% qoq, +35% yoy) beat consensus by +11%. On a FY23 basis, results were in-line with consensus estimates, with Ferrari comfortably exceeding management’s FY23 revenue and EBIT guidance of EUR5.9bn and >26.5%. Going forward, management’s FY24F guidance with revenue at >EUR6.4bn (+7% yoy), EPS at >EUR7.50 (+9% yoy) and EBIT/EBITDA margins of >27%/>38% were largely in-line with consensus expectations. Outlook remains positive with strong product/country mix and personalisation demand guided to continue in 2024, though management expects continued cost inflation headwinds. Orderbook remains impressive with orderbook filled through 2025, with most models substantially sold out which helps to drive earnings visibility.
Positive catalysts in near term include product launches, EV launch, management target beat, and share buyback programme. As guided during its June 2021 Capital Markets Day, Ferrari aims to achieve revenues of up to €6.7bn by 2026, which translates into a five-year CAGR of 9%, to be driven by volume growth and strong product mix from the launch of 15 new models between 2023 to 2025 (with three models to be released in 2024). Ferrari also aims to unveil its first battery EV (BEV) in 4Q2025, with BEV cars targeted to make up 40% of the total by 2030 (5% in 2026) and a new EV-building facilities to be built in 2025 (which will allow Ferrari to produce key EV components in house, e.g., battery assembly, inverters, e-motor, etc.). We believe Ferrari is on track with its plans and is set to beat management's revenue targets, with consensus forecasting Ferrari to reach €6.7bn a year earlier than management's guidance, i.e., by 2025, on the back of its strong orderbook and pricing. Furthermore, its share buyback programme (up until 2026) can also help support its share price. We see firm product launches through 2025, EV launch, management’s target upgrades, and share buybacks as positive catalysts to Ferrari's share price. The company’s ability to generate healthy cash flows from its operations should support its growth/share buyback initiatives.
We maintain non-consensus BUY with higher TP of EUR440 (versus EUR400 previously) on the back of positive catalysts in-sight. Our TP is based on forward PE ratio of 58x (previous 52x), pegged to +4.5SD above historical average (previous +3SD) on a Y+1 basis. We believe Ferrari's premium relative its peers is justified on the back of its strong orderbook and resilient margins/demand, noting other OEMs have guided for a more muted outlook and guidance going forward.
Risks
Major slowdown in demand for its vehicles and headwinds in the execution of its BEV transition/strategy could post a downside earnings risk to the company.
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