Ferrari (NYSE:RACE) Prices At Top End Of Range
$RACE, $FCAU
Supercar manufacturer Ferrari is revved up for the New York Stock Exchange, pricing at $52/share,and is said to be oversubscribed.
The company plan its trading debut Wednesday.
Fiat Chrysler Automobiles (NYSE:FCAU) has begun the process to spin off its luxury sports car company, Ferrari, 10% of the iconic company will hit the market with a valuation of nearly $10-B. Then, early next year, Fiat will complete the spinoff, selling its remaining 80% ownership of Ferrari, Ferrari’s founding family owns 10% that is not for sale.
For Fiat, the move makes sense as the company looks to lessen its debt load while also attempting to pull off a $55-B expansion plan over the next 5 years. Fiat’s move has creates a gain for the market, gassing up an IPO that has investors and car fanatics jazzed.
Fiat Chrysler CEO Sergio Marchionne has compared Ferrari’s high-luxury brand to that of fashion house Prada Group or manufacturer Hermes International, as opposed to other carmakers. The comparison is important because if Ferrari truly has the pull of those ultra-luxury brands, then it will protect the company from slowdowns in the market.
It turns out that Mr. Marchionne is correct in his comparison.
Ferrari maintains its value. As over the past 10 years for high-net worth luxury brands, including Hermes, Louis Vuitton and car manufacturers Bentley and Jaguar Land Rover. The variation shows how revenues fare with market changes. Ultra-high luxury brands do not see much shift, since wealthy buyers do not necessarily need to curb spending when the economy drops.
Ferrari is the World’s #1 Brand.
Ferrari’s revenues have little variability, with just 8% movement, a level of consistency comparable to Hermes, a French manufacturer of luxury clothing accessories. Bentley, on the other hand, had more than 31% variability, and Jaguar Land Rover had a 16% fluctuation.
Ferrari is much more consistent, despite economic cycles.
Ferrari partly maintains this level of luxury through its success in Formula One racing. Through its efforts on the track, Ferrari develops new engines and technology that eventually gets incorporated into its vehicles.
The racing team really drives the brand aura in the sense that F1 racing is a very expensive sport, a sport that has a wide appeal but only a select few can participate in because of the amount of investment that it takes to be involved. Ferrari leverages that by commercializing a product that is extremely exclusive.
The Scuderia Ferrari racing team also makes plenty of money in its own right.
Forbes values the team at $1.35-B and puts its revenues at $460-M, with the team in 2nd place in this year’s F1 standings. By buying the stock, investors get access to this unusual stream of income.
Ferrari maintains its high-luxury name not just through its product design, but also because of exclusivity.
So, it up to management to maintain a level of new products and revenue growth at a pace that will not dilute its brand. Expect that to happen.
Stay tuned…
HeffX-LTN
Paul Ebeling
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