October 19, 2015 – The book for the Ferrari IPO is expected to close today. It is scheduled to price tomorrow for trading at the NYSE on Wednesday.
They’re seeking to float roughly 10 percent of the company: 17.2 million shares at $48-$52, so at the $50 midpoint that would be $860 million, valuing the company at close to $10 billion.
The Ferrari family owns 10 percent; Fiat Chrysler owns the remaining 80 percent, but after the IPO, Fiat Chrysler shareholders will be given the remaining Ferrari shares to split the luxury car manufacturer from its parent company.
“This thing oozes sex appeal. It’s the Hermes of cars, the Ferragamo.”
“You might not be able to own the car, but you can own the stock.”
But that’s the problem I have with this: they are trying to position themselves exactly that way; “We are NOT Ford, we are NOT GM. We are a luxury brand item that deserves to be ranked among the luxury brand items of the world.”
Indeed, the company proudly claims “The world’s most recognizable luxury performance sports cars.” I have no doubt they are right.
But I have concerns for investors. I don’t want to go into a long discussion on the financial numbers; suffice it to say they are definitely positioning themselves with an Hermes valuation, not a Ford.
Not surprisingly, they are expecting particularly strong growth among the rich in Asia-Pacific, where they are expecting wealth to grow by 10.3 percent annually from 2014 to 2017.
Anyone who is looking at China, or anyone listening to Burberry this week and noted a sharp slowdown in luxury sales in China, should take such assumptions with a grain of salt.
They do make an interesting claim: that their net revenues, which achieved a 7 percent CAGR from 2005-2014 was “almost untouched by the financial crisis.” Here is another assumption: that the ultrarich will not be affected by any future global downturn.
Do you believe that is going to happen? OK, fine.
There’s another problem I have. They claim they are going to be growing. But they also make claims that they are super-exclusive. And they are, 7,000 cars a year is pretty exclusive. But do growth and exclusivity go hand-in-hand? I’m not so sure.
Neither is Aswath Damodaran from the NYU Stern School of Business. He was on our air Friday morning and immediately said that he thought Ferrari was worth $7.2 billion.
That is well below the roughly $10 billion the IPO would imply. His argument is that if they want to increase their valuation, they are going to have to dramatically increase sales.
But, he argues, they will not be able to keep their margins and the price premium if they dramatically increase sales. They are going to have to cut their prices.
But you can’t do both. And Ferrari implies that it can.