Ferrari (NYSE:RACE) Is Special, Its Luxury Brand Is Multi-generational
Ferrari (NYSE:RACE) plans to sell 17.2-M/ shares for as much as 52 each, according to an SEC filing.
That would raise a total of $894-M, and values the company at $9.8-B.
At $9.8-B, Ferrari would be valued at nearly 35X its annualized profits for 1-H of this year.
That is a really high multiple for a car company.
But, Ferrari is not just a “me too” car company, it is a luxury company with a multi-generational brand appeal.
As I have said before: About 50% of Ferrari’s current assets consist of its brand value. Goodwill and intangible assets are assets that exist as concepts backed with powerful IP intellectual property and copyright claims. Ferrari is the #1 brand in the world.
Even the best carmaker trade below 10X earnings. But luxury retailers garner double digit price-to-earnings multiples. Hermes is trading at about 38X profits.
Sales growth at Ferrari is slow. There just are not that many new Ferrari as there are customers each year.
Normally, that would mean a low valuation for the company. Revenues are only growing at 5% per Quarter. But the luxury brand is a whole other thing, and something that investors cannot ignore.
And Ferrari know that very well, in fact the world’s most expensive car is a Ferrari racer from the 1960’s that sold at auction when it fetched $38,115,000 at Bonhams’ Quail Lodge auction in Carmel, CA in August of Y 2014, there are rumors of private treaty transactions as high as $55,000,000 for a 250 GTO.
The firm’s business is not cyclical like the automakers since it builds a limited number of cars every year that are often spoken for in advance by passionate buyers – regardless of economic climate.
No discount marketing from Ferrari…
Mr. Marchionne makes the case that Ferrari deserves a higher valuation than automakers, because the company is like a luxury goods maker. Those companies trade at 20X profit, as opposed to automakers who trade in the 7 -9X range.
The company deserves to trade at a higher multiple, or premium, given that argument.
The Big Q: How big should that premium be, and how durable is that premium going to be, over time.
Ferrari will trade on the NYSE with the ticker “RACE” and priced at the top end of the 48-52 per share range.
UBS AG, Bank of America Corp.’s Merrill Lynch, Banco Santander SA, Mediobanca SpA and JPMorgan Chase & Co. are advising on the IPO.
The underwriters will have an option to buy an additional 1.7-M shares to cover over allotments, Friday’s filing shows.
Have a terrific weekend.
Paul Ebeling
HeffX-LTN
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