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FERRARI
Initiation of Coverage BUY
15 October 2019 – 9:00 AM MARKET PRICE: EUR140.2 TARGET PRICE: EUR163.0
Branded goods
Data
Shares Outstanding (m): 181.6
Market Cap. (EURm): 25,476
Enterprise Value (EURm): 25,773
Free Float (%): 36.4%
Av. Daily Trad. Vol. (m): 0.45
Main Shareholder: EXOR NV (23.5%)
Reuters/Bloomberg: RACE.MI RACE IM
52-Week Range (EUR) 84.1 152.6
Source: FactSet, UBI Banca estimates
Performance
1m 3m 12m
Absolute 1.0% -5.2% 39.5%
Rel. to FTSE IT 6.2% -2.9% 31.0%
Graph aerea Absolute/Relative 12M
Source: FactSet
Analysts
Massimo Vecchio Senior Analyst [email protected] Tel. +39 02 62753016
Dario Fasani Analyst [email protected] Tel. +39 02 62753014
www.ubibanca.com/equity-research
From RACE to RAC-e
We initiate the coverage on Ferrari with a BUY rating based on the uniqueness of the brand that still has meaningful space for growth (0.05% penetration on the 18 million HNWI). This will be enhanced by the development of hybrid cars which, in our view, will be accretive to profitability margins. We believe this is not the consensus view which, in fact, is below our estimates. We also believe that, while meaningful revenues from the electrification will materialize only from 2021-22, P&L is already taking the brunt of the associated costs. Therefore, once again, consensus is not appreciating the full effect on profitability of the price/mix increase of the past two years. Our TP offers a 16% upside.
> SF90 stradale: the first plug-in hybrid in the series car. Last May
Ferrari launched its first series car with a hybrid engine (La Ferrari was
already hybrid, but it was not a series car and not plug-in either). The
1,000hp car is equipped with a 780hp V8 engine and with three electric
engines worth 220hp in total. We believe that the profitability of this car is
astronomical: it will sell at a price lower than that of La Ferrari (our guess
estimate is EUR450K) but the additional costs related to the electric
engine we estimate being around EUR20/30,000.The only official
statement the company made on that topic is that the car “generates a
margin that is above that of the 812 Superfast”.
> Why Ferrari customers are willing to pay such a price for a hybrid.
While many may see electrification as a price to pay in terms of cars
performances but useful to reduce emissions, this is not the case for sport
cars. The performances of the SF90 Stradale are quite peculiar: a) two of
the three electric engines are mounted on the front wheels transforming
the car into a 4WD at times, with obvious benefits on the acceleration (2.5
second from zero to 100Km/h) and road-handling; b) every electric engine
can also rotate at different speed. This phenomenon, known as torque
vectoring, gives an unparalleled control during turns.
> 60% of the range will be electrified by 2022. This was expressed in the
2018 CMD, and should expand margins. Together with the introduction of
the V6 engine, we believe this should reduce emissions so to allow the
company to surpass the 10K units mark without any stress.
> We estimate a visible 12.5% 2018-22 Adj Net Profit CAGR while
continuing to generate cash. UBI is 12% above 2020 consensus EPS.
> Main risks. Trade wars; regulations changes, F1 developments (sport
results, Liberty Media strategy, transition to Formula-E). Financials EURm
2018 2019E 2020E 2021E
Revenues (EURm) 3,420 3,630 4,122 4,650
EBITDA (EURm) 1,135 1,301 1,490 1,776
EBITDA margin (%) 33.2% 35.8% 36.1% 38.2%
EBIT (EURm) 826 903 1,044 1,215
EPS (EUR) 4.2 3.8 4.4 5.1
CFPS (EUR) 2.7 3.6 4.2 5.9
DPS (EUR) 1.0 1.1 1.3 1.5
Source: Company Data, UBI Banca Estimates
Ratios (priced on 14 October 2019)
2018* 2019E 2020E 2021E
P/E (x) 25.3 36.8 31.9 27.4
P/CF (x) 38.8 29.2 25.3 18.0
P/BV (x) 14.7 10.6 7.9 6.2
Dividend Yield 1.0% 0.8% 0.9% 1.1%
EV/EBITDA (x) 17.3 19.8 17.0 13.9
Debt/Equity (x) -0.3 -0.2 0.1 0.2
Debt/EBITDA (x) -0.3 -0.2 0.1 0.5
Source: Company data, UBI Banca Estimates, *18 average price
70
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140
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Ferrari NV FTSE Italia All-Share
FERRARI 15 October 2019
2
Index
1
INVESTMENT CASE: WHY HYBRIDS ARE AN OPPORTUNITY
4
2
SWOT ANALYSIS
8
3
FINANCIALS
9
4
VALUATION
11
FERRARI 15 October 2019
3
Key Financials
(EURm) 2018 2019E 2020E 2021E
Revenues 3,420 3,630 4,122 4,650
EBITDA 1,135 1,301 1,490 1,776
EBIT 826 903 1,044 1,215
NOPAT 568 622 719 839
Free Cash Flow 425 607 667 917
Net Capital Employed 2,487 2,968 3,156 3,220
Shareholders’ Equity 1,354 1,878 2,509 3,227
Net Financial Position (1,133) (1,090) (646) 7
Source: Company data, UBI Banca estimates
Key Profitability Drivers
2018 2019E 2020E 2021E
Net Debt/Ebitda (x) -0.3 -0.2 0.1 0.5
Net Debt/Equity (x) -0.3 -0.2 0.1 0.2
Interest Coverage (%) 49.3 43.8 62.7 117.7
Free Cash Flow Yield (%) 2.1% 2.3% 2.5% 3.5%
ROE (%) 58.1% 38.3% 33.1% 30.0%
ROI pre-tax (%) 61.0% 48.1% 41.6% 37.6%
ROCE (%) 22.9% 21.0% 22.8% 26.0%
Source: Company data, UBI Banca estimates
Key Valuation Ratios
2018 * 2019E 2020E 2021E
P/E (x) 25.3 36.8 31.9 27.4
P/BV (x) 14.7 10.6 7.9 6.2
P/CF (x) 38.8 29.2 25.3 18.0
Dividend Yield (%) 1.0% 0.8% 0.9% 1.1%
EV/Sales (x) 5.7 7.1 6.1 5.3
EV/EBITDA (x) 17.3 19.8 17.0 13.9
EV/EBIT (x) 23.7 28.5 24.3 20.3
EV/CE (x) 7.9 8.7 8.0 7.7
Source: Company data, UBI Banca estimates * Based on 2018 average price
Key Value Drivers
(%) 2018 2019E 2020E 2021E
Payout 24.6% 27.7% 30.0% 30.0%
NWC/Sales -1.5% -5.0% -5.0% -4.7%
Capex/Sales -18.6% -20.6% -17.7% -14.7%
Source: Company data, UBI Banca estimates
FERRARI 15 October 2019
4
INVESTMENT CASE: WHY HYBRIDS ARE AN OPPORTUNITY
We initiate the coverage on Ferrari with a BUY rating and a target price of
EUR163.0. Our investment case is based on the followings:
A unique asset that can leverage on a community of ultra-wealthy clients
worldwide extremely loyal to the brand;
The visibility on its revenues/cash streams also thanks to a long waiting list;
Figure 1 – Ferrari resiliency vs. other performance car manufacturers
Source: Company data
The pricing power that the brand is showing;
Its wide product offer compared to competition, and that this gap has only
enlarged in recent years (the launch of the “Icona” models and the addition of
the rear-mid engine architecture are good example);
Figure 2 – Ferrari product line-up
Source: Company data
FERRARI 15 October 2019
5
The possibility to widen its products/geography matrix in segments
unexploited before: Gt potential customers and geographies like China (where
HNWI has the strongest expected CAGR of all worldwide regions) are
examples. According to Capgemini there are 18 million HNWI in the world
returning a penetration for Ferrari of only 0.05%;
The strong cash generation that will be returned to shareholders in the form of
dividends and buy back and that protects the competitive advantage the
company has;
We expect earnings surprise in the coming quarters;
The space available in terms of valuation, mostly when using absolute
methods.
On top of that, we believe that many on the market fears the introduction of hybrid
and electric cars will negatively impact company profitability and, more importantly,
will reduce the exclusivity of the brand. In our view instead:
Hybrids sport car are more performing than petrol cars as they add power and
torque while not reducing driveability;
Thus, the value customers attach to this kind of products is higher than the
increased content costs;
We believe that margins attached are higher than the current average. A
confirmation of that comes from the company itself that targets 60% of its
product mix to be hybrid by 2022 and, at the same time, a “significant increase
in average retail price thanks to price/product mix”. While it will not come
entirely from hybrids, for sure this category will not be dilutive;
As every technology, if one like Ferrari has an long history of mastering
leading edge technologies and very likely will continue to do in the hybrid-
electric space.
We made some estimates on the profitability of the first ever series Ferrari with a
hybrid propulsion, the SF90 stradale. We believe that it would sell (before VAT and
dealer margins) at EUR450,000 a level that is above any other series car by a wide
margin (the 812 Gts seems to us the most expensive series car and we estimate it
has a price, ex-VAT and dealer margins, of around EUR300,000). Summing up,
while in the general part of this sector report we named the price as one (if not the
main) factor preventing customers to buy hybrid/electric cars, this is not true in the
case of sport cars.
In terms of added content we estimate that it amounts to anywhere between EUR20,000 and EUR30,000 as can be seen in the following table:
Figure 3 – Hybrid extra content cost
Additional components Number of units Cost/Unit Total Cost
BMS 1 140 140
Battery Pack 1 6,000 6,000
Torque vectoring 3 200 600
Electronic control unit 3 290 870
Power Distribution Unit 3 650 1,950
Inverter 3 1,600 4,800
Motor (Pancake or PM-OC) 3 2,500 7,500
Charger 1 600 600
Total 22,460
Source: UBI Banca estimates
FERRARI 15 October 2019
6
In terms of autonomous driving, what we wrote in the general part of this sector
report has mostly to do with mass market vehicles. Aside from the fact that this
trend will materialize in the very long in mass market as well, we believe that there
will always be a space for human-driven sport cars.
Autonomous Driving can be an interesting opportunity for Ferrari: it could be a
system for real-time coaching. We came across start-ups and University research
centers which are developing similar systems. In other words a software can
support the human in specific driving conditions (snow, mud, ice, race, mountain
uphill, etc) teaching the driver how to improve its performances. Or, it could simply
help the inexpert driver to manage a car like a Ferrari that some perceives as too
powerful to drive.
All in all, the combined effect of what we said would bring sales volumes above the
10,000 units mark, surpassing the Small Volume Manufacturer limit thus triggering
different emission targets. We believe this is not an issue as the combined effect of
Declining emission on petrol engines;
The benefit of lower emissions from hybrids;
The bonus granted by several regulators on hybrids
All would make the issue manageable. If eventually small fines would have to be
paid those should be not material.
Our estimates are above consensus and this is a crucial element of our investment
case:
Figure 4 – UBI vs Consensus
(EURm, units, %) 2019 2020
Cons UBI % change Cons UBI % change
Shipments (units) 9,839 10,329
Net Revenues 3,713 3,630 -2.2% 4,044 4122 1.9%
EBITDA – Adj 1,264 1,301 2.9% 1,443 1,490 3.3%
% 34.0% 35.8% 35.7% 36.1%
EBIT - Adj 923 903 -2.1% 1,044 1,044 0.0%
% 24.9% 24.9% 25.8% 25.3%
ADJ. EPS Diluted 3.75 3.66 -2.4% 4.08 4.57 12.2%
Ind. FCF 487 607 24.6% 459 667 45.3%
Source: FactSet, UBI Banca estimates
Our target price has been obtained as an average of three valuation methods
(DCF, EVA and a peers comparison) as shown in the table below. For more details
please look at the valuation section:
FERRARI 15 October 2019
7
Figure 5 – Summary Valuation
Source: UBI Banca estimates
161
154
175
163
DCF Peers EVA Average
FERRARI 15 October 2019
8
SWOT ANALYSIS
Strengths
Unmatchable brand image, the world's most recognizable luxury performance
sport car;
Unique racing heritage;
Loyal and growing customer base composed of UHNWI;
Exceptional pricing power and value resiliency overtime;
Widest product offer declined by engines, GT/Sport, road/non-registered cars;
Leading hedge engineering capabilities;
In-house design, engineering, production, chassis and engines production
gives full control on the entire process and high flexibility;
Business model presents low risk on the retail side as dealers and stores are
franchisees;
Best-in-class "clients relations" activities;
Strong and resilient financial performances that allow to finance investments in
future technologies (like hybrids) which are unfeasible for many small and mid
producers;
High entry barriers;
Strong, experienced management team.
Weaknesses
Exposure to exchange rate fluctuations;
Product category not ideal to benefit from growth in Chinese's HNWI;
100% reliance on a single plant (Maranello, Modena only for chassis);
Opportunities
Personalization increasing more than we estimate;
Volumes increases;
Efficiencies higher than expected also on F1;
Above expectations development of the brand extension activities;
M&A opportunities also thanks to limited leverage and strong cash flow;
Threats
Trade war may impact volumes or margins and, with a single plant, is
impossible to balance-out also in the long run;
Need to maintain a proper balance between exclusivity and growth;
Lack of wins in F1;
Preserving the brand image is imperative;
Emissions rules and, more in general, legislation changes (including safety
standards);
Ferrari has to be wise in deciding which technology has to produce in-house
and which one can be outsourced in order to find a right balance between
control and investments.
FERRARI 15 October 2019
9
FINANCIALS
We expect Ferrari to report:
A 2018-22 Sales CAGR of 9.0% with Cars and spare parts posting a 12.9%
(mostly driven by volumes, at 8.2%, while price/mix/forex is expected at
+4.3%);
Adj. EBITDA 2018-22 CAGR of 15.8% thanks to the price/mix and operating
leverage;
Adj. Net Income 2018-22 CAGR of 12.5% due to the expiration of the patent
box benefit that should increase the tax rate by more than 400bps;
EUR3.4 billion cumulated FCF for 2019-22 with the business turning cash
positive by 2022.
We assume the company to surpass the 10,000 units mark by 2020 and the
12,000 mark by 2022:
Figure 6 – Car sales estimates - breakdown by model
(Units) 2018 2019E 2020E 2021E 2022E 2023E 2024E
Sport cars 6,303 6,750 7,220 8,011 7,735 8,391 8,302
Tributo (488 GTB until 1H19) 3,153 2,700 3,000 3,200 3,000 3,000 2,900
F8 Spider (488 Spider until 4Q19) 1,850 1,650 1,200 1,500 1,700 1,600 1,500
488 Pista (458 Speciale) 300 935 900 900 200 900 1,000
488 Pista spider n.a. 350 350 450 550 500 550
Rear-mid engine (to be announced) n.a. n.a. 275 316 323 329 336
SF90 Stradale n.a. n.a. 200 350 700 700 600
V8 - Total 5,303 5,635 5,925 6,716 6,473 7,029 6,886
812 Superfast 950 1,045 1,045 1,045 993 1,092 1,147
LaFerrari/LaFerrari Aperta 30 n.a. n.a. n.a. n.a. n.a. n.a.
Icona n.a. 45 230 230 250 250 250
Fuori Serie 20 25 20 20 20 20 20
V12 - total 1,000 1,115 1,295 1,295 1,263 1,362 1,417
GT cars 2,948 3,089 3,109 3,525 4,965 5,495 6,046
Portofino (California T until 2018) 1,846 1,939 1,939 1,977 2,017 2,017 1,815
GTC4Lusso T 202 250 220 198 198 228 250
V8 - Total 2,048 2,189 2,159 2,175 2,215 2,245 2,066
GTC4Lusso 900 500 350 350 400 450 480
812 Gts 200 400 600 600 500 450
New models 200 200 400 850 900 1,050
Purosangue 900 1,400 2,000
V12 - total 900 900 950 1,350 2,750 3,250 3,980
Total cars sold 9,251 9,839 10,329 11,537 12,700 13,886 14,348
% change 10.2% 6.3% 5.0% 11.7% 10.1% 9.3% 3.3%
Source: Company data, UBI Banca estimates (for specific models)
Some more details on our estimates:
During 2Q19 call management stated that the order book has reached record
levels in both absolute and relative terms. Furthermore, the launch of the F8
Tributo is going very well, ahead of both the 458 and 488 for the respective
period since their launch. On the other hand the second half, while benefiting
from 4Q19 of the Monza ramp-up, will be hit by several factors:
o The end of the lifecycle of the 488GTB and Spider and the approach
FERRARI 15 October 2019
10
of the end of the lifecycle for the GTC4Lusso and GTC4Lusso T;
o Also on the FXX K, extremely accretive mix-wise, there are hardly
any volume left;
o The slowdown of China volumes, which were particularly booming in
1H19 in anticipation of regulatory issues;
o A ramp up in the capex;
o A ramp up in spending to support the launch of 3 new models;
o A ramp up in investments on F1 given that the 2021 regulations are
completely different from the current ones.
2020 should witness another improvement on all metrics: a full year for the
Monza and the SF90 (which are high-margins products) coupled with volume
increase from the tail effect of the 5 new products launched during 2019 will
be the main drivers;
On the tax side, the current Patent Box exemption expired with 2019 but it was
extended so Ferrari filed its new request and is beginning talks with the
authorities. We believe that the new benefits will be lower than the ones
expiring, so we are factoring-in a 20% tax rate going forward with EUR55
million benefit on the cash-taxes side;
As far as China volume growth, as management stated during the call “the key
to China will be the Purosangue”. Also the SF90 will be an
attractive model for China from 2020 because its hybrid feature that will get a
significant tax benefits.
Lastly, our 3Q19 preview is represented in the below table:
Figure 7 - 3Q 2019 preview
(EURm) 3Q 2018A 3Q 2019E YoY chg.
Shipments (units) 2,262 2,285 1.0%
Total sales 838 853 1.8%
EBITDA Adj. 278 282 1.4%
EBITDA margin % 33.2% 33.0%
EBIT 202 203 0.3%
EBIT margin % 24.1% 23.7%
Net profit 287 162 -43.6%
Industrial Net (Debt)/Cash (372) (318)
Res. Net profit 146 162 10.9%
Source: Company data, UBI Banca estimates
FERRARI 15 October 2019
11
VALUATION
Our target price has been obtained as an average of three valuation methods
(DCF, EVA and a peers comparison).
Figure 8 – Summary Valuation
Source: UBI Banca estimates
Peer Group valuation
Out of the entire universe of branded goods and luxury sports cars (see Figure 10
for more details) we selected a group of peers which we deem being more
comparable (although it is worth saying that a real comparable doesn’t not exist):
Hermes and Brunello Cucinelli have a similar concept of self-imposed
production limits and controlled distribution;
Those two companies, together with Essilor-Luxottica, are the ones, within the
peer group, with the lowest share of third-party production.
We excluded from the peer group used to asses the target price:
LVMH and Richemont because of their “holding company” nature;
Moncler because it outsource to third-party 100% of its production;
Ferragamo and Burberry because of their earning trend in the last year which
has been going in the opposite direction of Ferrari.
Before entering into the comparison exercise, it is worth focusing on why we
excluded Aston Martin from the peer group:
Lower number of models when compared to Ferrari product offer;
Lower number of engines, not necessarily internally developed;
Lower cash generation (2018, before IPO costs returned a FCF of GBP15
million);
Lower profitability (net loss in 2018, low EBITDA margin when adjusted for
capitalized R&D);
Lower return on capital.
The performance of this peer group has been broadly positive but below the YTD
performance of Ferrari:
161
154
175
163
DCF Peers EVA Average
FERRARI 15 October 2019
12
Figure 9 – Share price performance
Company Price Market cap Share performance
mn 1M 3M 6M 12M YTD 3 Years
Brunello Cucinelli (EUR) 26.8 1,821 -8.0% -
15.7% -16.0% -9.2% -10.9% 49.0%
Hermes (EUR) 634.2 66,952 -1.4% -1.7% 5.8% 28.9% 30.8% 69.8%
EssilorLuxottica (EUR) 134.4 58,646 3.1% 13.9% 33.0% 16.8% 21.6% 20.8%
Aston Martin (GBP) 5.0 1,143 -24.0% -
51.8% -54.4% -71.5% -63.2% n.a.
Moncler (EUR) 34.2 8,823 -2.6% -
11.1% -6.3% 10.6% 18.2% 123.5%
LVMH (EUR) 379.3 191,685 -0.7% -1.2% 10.6% 44.5% 46.9% 127.4%
Burberry Group (GBP) 22.8 9,337 -6.9% 1.6% 0.9% 13.5% 17.7% 34.2%
Ferragamo (EUR) 16.3 2,750 -11.7% -2.5% -17.7% -11.3% -7.7% -28.9%
Richemont SA (EUR) 65.8 37,791 -10.8% -
11.7% 2.4% 4.5% 17.7% 8.0%
Ferrari 140.3 34,888 1.0% -5.2% 14.4% 39.5% 61.6% 191.6%
FTSE Italy 137.6 330,925 -0.5% -0.9% 0.5% 13.8% 19.1% 30.1%
Average (ex-Ferrari) -7.0% -
11.1% -4.6% 3.0% 7.9% 50.5%
Source: FactSet
With that in mind, comparing peers financials with Ferrari’s we note that:
Ferrari is investing well above peers as its capex/sales spread vs. them is
above 10% on average for the 2019-21 period;
At the same time its EBITDA margin is around 10% higher than that of peers
over the same time horizon;
The combined result of the two points above is that Ferrari FCF/EBITDA and
FCF Yield are broadly aligned with peers. Its ROCE (post-tax) is comparable
as well.
When compared to other branded goods stock and with Aston Martin it is clear
how Ferrari, and the peer group we selected, can boast better financials:
Figure 10 – Comparison with Ferrari on EBITDA margins, cash generation, capex/Sales and ROCE
Name TIER Price Curr Mkt Cap FCF/EBITDA Capex/Sales ROCE (post tax) EBITDA %
bn 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E
Brunello Cucinelli I 26.8 EUR 1.8 25.2% 33.3% 33.8% 7.8% 7.4% 7.0% 17.4% 16.9% 17.5% 17.3% 17.5% 17.7%
Hermes International I 634.2 EUR 67.0 55.4% 57.5% 0.0% 5.2% 4.8% 4.6% 64.1% 68.4% 73.9% 39.0% 39.3% 39.7%
EssilorLuxottica SA I 134.4 EUR 58.6 43.8% 49.6% 5.4% 5.5% 5.4% 5.4% 5.8% 6.3% 22.1% 22.6% 23.0%
Aston Martin II 5.0 GBP 1.1 -43.5% -7.9% 0.0% 20.1% 15.7% 13.3% 2.1% 8.7% 11.6% 20.3% 22.9% 23.9%
Moncler SpA II 34.2 EUR 8.8 53.7% 53.1% 50.3% 6.8% 6.3% 6.0% 55.4% 55.9% 54.5% 34.9% 35.1% 35.4%
LVMH II 379.3 EUR 191.7 47.2% 48.4% 51.8% 5.8% 5.3% 5.1% 17.6% 19.2% 20.1% 27.2% 27.6% 27.7%
Burberry Group II 22.8 GBP 2.3 45.7% 49.5% 51.9% 7.0% 6.6% 6.4% 55.1% 53.9% 55.6% 21.0% 21.7% 22.5%
Salvatore Ferragamo II 16.3 EUR 2.1 46.4% 48.8% 49.4% 5.0% 4.8% 4.8% 17.4% 19.0% 21.2% 15.5% 16.3% 17.3%
Richemont II 65.8 CHF 2.1 37.2% 43.6% 45.9% 5.6% 5.5% 5.5% 11.4% 11.9% 12.7% 20.4% 20.8% 21.6%
Average
41.5% 46.8% 35.4% 6.1% 5.9% 5.7% 29.0% 30.4% 32.6% 26.1% 26.4% 26.8%
Ferrari
45.7% 48.8% 21.0% 5.8% 5.5% 5.5% 17.4% 19.0% 20.1% 21.0% 22.6% 23.0%
Median – All peers
46.7% 44.8% 51.6% 20.6% 17.7% 14.7% 25.2% 27.1% 30.5% 35.8% 36.1% 38.2%
Source: FactSet, UBI Banca estimates
FERRARI 15 October 2019
13
In terms of multiples, the Tier I peer group shows a very low dispersion of
multiples, therefore we consider fair to use all of those peers as a valuation tool:
Figure 11 – Peer Group Multiples
Tier Price Curr MktCap EV/EBITDA EV/EBIT P/E Adjusted FCF Yield
bn 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E
Hermes International I 634.2 EUR 67.0 23.9 x 21.5 x 19.4 x 27.4 x 24.6 x 22.2 x 44.1 39.8 36.1 2.2% 2.5% 2.8%
EssilorLuxottica I 134.4 EUR 58.6 15.8 x 14.5 x 13.3 x 22.7 x 20.6 x 18.6 x 30.3 27.9 25.2 2.9% 3.5% 3.8%
Brunello Cucinelli II 26.8 EUR 1.8 17.7 x 16.2 x 14.6 x 24.2 x 22.0 x 19.9 x 34.7 33.1 29.9 1.4% 2.1% 2.3%
Aston Martin II 5.0 GBP 1.1 7.9 x 5.3 x 4.2 x 24.4 x 11.4 x 7.9 x n.a. 18.3 9.5 -9.6% -2.7% 5.2%
Moncler SpA II 34.2 EUR 8.8 14.3 x 12.2 x 10.7 x 16.5 x 14.1 x 12.3 x 23.7 21.9 19.6 3.5% 3.9% 4.1%
LVMH II 379.3 EUR 191.7 13.7 x 12.3 x 11.2 x 17.3 x 15.5 x 14.1 x 26.1 23.5 21.6 3.6% 4.0% 4.6%
Burberry Group plc II 22.8 GBP 2.3 2.4 x 2.2 x 10.8 x 11.2 x 9.9 x 13.9 x 14.4 12.6 24.2 3.4% 3.9% 4.6%
Salvatore Ferragamo II 16.3 EUR 2.1 1.7 x 1.6 x 13.1 x 10.6 x 9.3 x 18.8 x 14.8 12.7 31.4 3.6% 4.2% 4.8%
Richemont II 65.8 CHF 2.1 2.2 x 2.0 x 10.4 x 10.6 x 9.4 x 15.2 x 14.3 12.7 25.4 3.0% 3.9% 4.5%
Average - Tier I 19.1 x 17.4 x 15.7 x 24.7 x 22.4 x 20.2 x 36.4 x 33.6 x 30.4 x 2.2% 2.7% 2.9%
Median – All peers 13.7 x 12.2 x 10.7 x 17.3 x 14.8 x 12.7 x 27.1 x 23.5 x 20.9 x 2.3% 2.5% 3.4%
Ferrari 140.2 EUR 26.5 19.8 x 17.0 x 13.9 x 28.5 x 24.3 x 20.3 x 36.8 x 31.9 x 27.4 x 2.3% 2.5% 3.5%
Prem./(Disc.) toTier I 3.6% -2.2% -11.8% 15.3% 8.3% 0.6% 1.2% -5.2% -10.0% -6.0% 6.1% -
15.3%
Source: FactSet
We believe the combination of risk and growth allows Ferrari to be valued on same
static multiples than its peers, meaning a valuation of EUR154.0 per share
(averaging 2020-22):
Figure 12 – Peers comparison valuation
(EURm, x) 2020 2021 2022
EV/EBITDA - peers 17.4 15.7 14.2
Ferrari Adj. EBITDA - Industrial ops. € 1,467 € 1,750 € 2,013
Implied EV € 25,507 € 27,569 € 28,539
Ferrari Debt/(Cash) -€ 146 -€ 799 -€ 1,723
Pension liabilities € 87 € 82 € 78
A - FERRARI Equity value € 25,567 € 28,286 € 30,184
PE - Peers 33.5 30.4 27.3
Ferrari Net Profit € 815 € 949 € 1,013
B - FERRARI Equity Value € 27,265 € 28,826 € 27,683
Average of A and B € 26,416 € 28,556 € 28,934
FinCo Value 534 605 630
Ferrari Group - Fair value € 26,949 € 29,161 € 29,564
Number of shares 182 182 182
Ferrari Group - fair value p.s. € 145.4 € 157.2 € 159.3
Source: FactSet, UBI Banca estimates
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DISCOUNTED CASH FLOW
The DCF is our preferred valuation method given that, as we already wrote, the
asset is a “unicum" in our view with a solid and visible cash flow generation. Here
below you’ll find the assumptions used for the DCF valuation:
Explicit estimates until 2024;
Terminal value calculated on a revenues growth of 4.0% and an EBIT
margin at 28%, capex in line with D&A, and neutral. This returns an exit
EV/EBITDA multiple of 15.1x;
A WACC of 6.0% deriving from:
o A free risk rate of 2.5%, higher than the current market one;
o An equity risk premium of 4.5%;
o A beta of 1.0;
o A sustainable D/E of 19% (implying Debt/EBITDA of 2.5x).
In summary, as a result we would value Ferrari at EUR160.6 based on our DCF:
Figure 13 – DCF summary valuation
(EURm)
PV of future cash flows € 5,383
PV of Terminal value € 24,086
Enterprise value € 29,469
Net debt YE 2018 - Industrial -€ 298
Equity Value € 29,172
No of shares (m) 182
Equity Value ps € 160.6
Source: UBI Banca estimates
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EVA Valuation
The EVA is a valuation method to be favored as well because, although it
considers only partially the cash generation side of the business (it does it through
the deleverage) it takes into account the return on capital of this business. ROCE
is a topic to be looked carefully in a company that runs its single plant far away
from its full capacity.
With a post tax return of 27% Ferrari, on an EVA basis, should be worth in our view
EUR175 p.s.:
Figure 14 – EVA Valuation
(EURm, %)
Av. CE € 3,096
Av. EBIT (post tax) € 834
Av. ROACE 2019-22 27.0%
WACC 2.67%
Risk free rate 2.5%
Beta 1.00
Market premium 4.5%
Cost of Equity 7.0%
Cost of debt 0.8%
% theoretical Debt on CE 70.0%
ROACE/WACC 10.1
CE - Average € 3,096
A - Implied EV € 31,235
B - Net Debt/(Cash) - average 19-22 -€ 593
C - Pension liabilities € 74
Implied Equity value (A-B-C+D) € 31,753
Number of shares 182
Fair value 175
Source: UBI Banca estimates
Figure 15 – EVA Valuation – Sensitivity Analysis
ROACE
26.0% 27.0% 28.0%
WACC 2.2% 206.6 214.4 222.3
2.7% 168.4 174.8 181.2
3.2% 142.3 147.7 153.1
Source: UBI Banca estimates
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Income Statement
(EURm) 2018 2019E 2020E 2021E
Net Revenues 3,420 3,630 4,122 4,650
EBITDA 1,135 1,301 1,490 1,776
EBITDA margin 33.2% 35.8% 36.1% 38.2%
EBIT 826 903 1,044 1,215
EBIT margin 24.2% 24.9% 25.3% 26.1%
Net financial income /expense -23 -30 -24 -15
Associates & Others 3 5 5 5
Profit before taxes 803 874 1020 1200
Taxes -16 -155 -190 -233
Minorities & discontinuing ops 0 0 0 0
Net Income 787 719 830 967
Source: Company data, UBI Banca estimates
Balance Sheet
(EURm) 2018 2019E 2020E 2021E
Net working capital -51 -182 -206 -220
Net Fixed assets 2,374 2,726 3,008 3,131
Other assets/(liabilities) 164 -379 -415 -352
Capital employed 2,487 2,968 3,156 3,220
Shareholders' equity 1,349 1,873 2,504 3,222
Minorities 5 5 5 5
Shareholders' funds 1,354 1,878 2,509 3,227
Net financial debt/(cash) -1,133 -1,090 -646 7
Source: Company data, UBI Banca estimates
Cash Flow Statement
(EURm) 2018 2019E 2020E 2021E
NFP Beginning of Period (1,679) (1,547) (1,504) (1,060)
EBITDA 1135 1301 1490 1776
Interest expenses -23 -30 -24 -15
Cash taxes -16 -155 -190 -233
Change in Working Capital 16 130 25 13
Other -70 80 70 45
Operating Cash Flow 1,042 1,327 1,371 1,587
Net Capex (637) (749) (728) (684)
Other Investments (146) (65) (56) (127)
Free Cash Flow 259 513 587 775
Dividends Paid (136) (195) (199) (249)
Other & Chg in Consolid. Area 0 0 0 0
Chg in Net Worth & capital Incr. (136) (340) 0 0
Change in NFP 132 43 444 653
NFP End of Period (1,547) (1,504) (1,060) (407)
Source: Company data, UBI Banca estimates
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Financial Ratios
(%) 2018 2019E 2020E 2021E
ROE 58.1% 38.3% 33.1% 30.0%
ROI 61.0% 48.1% 41.6% 37.6%
Net Fin. Debt/Equity (x) -0.3 -0.2 0.1 0.2
Net Fin. Debt/EBITDA (x) -0.3 -0.2 0.1 0.5
Interest Coverage 49.3 43.8 62.7 117.7
NWC/Sales -1.5% -5.0% -5.0% -4.7%
Capex/Sales -18.6% -20.6% -17.7% -14.7%
Pay Out Ratio 24.6% 27.7% 30.0% 30.0%
Source: Company data, UBI Banca estimates,
Per Share Data
(EUR) 2018 2019E 2020E 2021E
EPS 4.17 3.81 4.40 5.13
DPS 1.03 1.06 1.32 1.54
Op. CFPS 5.52 7.03 7.27 8.41
Free CFPS 2.25 3.22 3.53 4.86
BVPS 7.18 9.96 13.30 17.11
Source: Company data, UBI Banca estimates
Stock Market Ratios
(x) 2018 * 2019E 2020E 2021E
P/E 25.3 36.8 31.9 27.4
P/OpCFPS 38.8 29.2 25.3 18.0
P/BV 14.7 10.6 7.9 6.2
Dividend Yield (%) 1.0% 0.8% 0.9% 1.1%
Free Cash Flow Yield (%) 2.1% 2.3% 2.5% 3.5%
EV (EURm) 19,609 25,773 25,330 24,676
EV/Sales 5.7 7.1 6.1 5.3
EV/EBITDA 17.3 19.8 17.0 13.9
EV/EBIT 23.7 28.5 24.3 20.3
EV/Capital Employed 7.9 8.7 8.0 7.7
Source: Company data, UBI Banca estimates * Based on 2018 average price
Growth Rates
(%) 2018 2019E 2020E 2021E
Growth Group Net Sales 0.1% 6.2% 13.5% 12.8%
Growth EBITDA 9.5% 14.6% 14.5% 19.2%
Growth EBIT 6.6% 9.4% 15.5% 16.4%
Growth Net Profit 46.5% -8.6% 15.5% 16.5%
Source: Company data, UBI Banca estimates
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Disclaimer
Analyst Declaration
This research report (the “Report”) has been prepared by Massimo Vecchio and Dario Fasani on behalf of UBI Banca S.p.A. (“UBI Banca”) in the context of the ancillary service provided by UBI Banca named “Investment research and financial analysis or other forms of recommendation relating to transactions in financial instruments” under Paragraph 5), Section B, Annex I of the Directive 2014/65/EU (“MiFID II”). UBI Banca is an Italian bank under art. 4 (1)(27) of MiFID II and it is supervised by the European Central Bank and duly authorised to provide investment services pursuant to Article 1, Paragraph 5, letter a), b), c), c-bis), e) and f) of the Legislative Decree 24 February 1998, n° 58 under the supervision of the Italian Authority for the financial markets (Consob). UBI Banca has its head office at Piazza Vittorio Veneto 8, 24122 Bergamo.
The analyst who prepared the Report, and whose name and role appear on the front page, certifies that:
a. The views expressed on the company, mentioned herein (the “Company”) accurately reflect his personal views, but do not represent the views or opinions of UBI Banca, its management or any other company which is part of or affiliated with UBI Banca group (the “UBI Banca Group”). It may be possible that some UBI Banca Group officers may disagree with the views expressed in this Report;
b. He has not received, and will not receive any direct or indirect compensation in exchange for any views expressed in this Report;
c. The analyst does not own any securities and/or any other financial instruments issued by the Company or any financial instrument which the price depends on, or is linked to any securities and/or any financial instruments issued by the Company.
d. Neither the analyst nor any member of the analyst’s household serves as an officer, director or advisory board member of the Company.
e. The remuneration of the analyst is not directly tied to transactions for services for investment firms or other types of transactions it or any legal person, part of the same group performs, or to trading fees it or any legal person that is part of the same group receives.
f. Massimo Vecchio is a member of AIAF.
General disclosure
This Report is for information purposes only. This Report (i) is not, nor may it be construed, to constitute, an offer for sale or subscription or of a solicitation of any offer to buy or subscribe for any securities issued or to be issued by the Company, (ii) should not be regarded as a substitute for the exercise of the recipient’s own judgement. In addition, the information included in this Report may not be suitable for all recipients. Therefore the recipient should conduct their own investigations and analysis of the Company and securities referred to in this document, and make their own investment decisions without undue reliance on its contents. Neither UBI Banca, nor any other company belonging to the UBI Banca Group, nor any of its directors, managers, officers or employees, accepts any direct or indirect liability whatsoever (in negligence or otherwise), and accordingly no direct or indirect liability whatsoever shall be assumed by, or shall be placed on, UBI Banca, or any other company belonging to the UBI Banca Group, or any of its directors, managers, officers or employees, for any loss, damage, cost, expense, lower earnings howsoever arising from any use of this Report or its contents or otherwise arising in connection with this Report.
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The information provided and the opinions expressed in this Report are based upon information and data provided to the public by the Company or news otherwise public, and refers to the date of publication of the Report. The sources (press publications, financial statements, current and periodic releases, as well as meetings and telephone conversations with the Company’s representatives) are believed to be reliable and in good faith, but no representation or warranty, express or implied, is made by UBI Banca as to their accuracy, completeness or correctness. Past performance is not a guarantee of future results. Any opinions, forecasts or estimates contained herein constitute a judgement as of the date of this Report, and there can be no assurance that the future results of the Company and/or any future events involving directly or indirectly the Company will be consistent with any such opinions, forecasts or estimates. Any information herein is subject to change, update or amendment without notice by UBI Banca subsequent to the date of this Report, with no undertaking by UBI Banca to notify the recipient of this Report of such change, update or amendment.
Organizational and administrative arrangements to prevent conflicts of interests
UBI Banca maintains procedures and organizational mechanism (physical and non physical barriers designed to restrict the flow of information between the unit which performs investment research activity, and other units of UBI Banca) to prevent and professionally manage conflicts of interest in relation to investment research in accordance with art. 23 of Directive 2014/65/EU and under art. 34 (3) and art. 37 of the Regulation 2017/565/EU.
More specifically, UBI Banca has established, implements and maintains an effective conflicts of interests policy aimed at preventing and managing the potential conflicts of interest that could occur during the performance of the investment research services.
Insofar as the above mentioned organizational and administrative arrangements established by UBI Banca to prevent or manage potential conflicts of interests are not sufficient to ensure, with reasonable confidence, that risks of damage to the interests of the client will be prevented, UBI Banca engages to provide a clear disclosure of the specific conflicts of interests arising from the performance of investment research services, including a description of the sources of those conflicts and the steps undertaken to mitigate them, taking into account the nature of the client to whom the disclosure is being made. For further information please see UBI Banca’s website (www.ubibanca.com/equity-research - “Informativa sintetica sull’attività di ricerca”) and (www.ubibanca.com/Mifid - “Policy sintetica conflitti di interessi”). More details about the conflicts of interests policy will be provided by UBI Banca upon request.
Disclosure of interests and conflicts of interests pursuant to Delegated Regulation 2016/958/EU
In relation to the Company the following interest/conflict of interest have been found:
> UBI Banca may have long or short positions with the issuer
> UBI Banca has delivered corporate finance services to Ferrari N.V. in the last 12 months
On the basis of the checks carried out no other interest/conflict of interest arose.
Frequency of updates
UBI Banca aims to provide continuous coverage of the companies in conjunction with the timing of periodical accounting reports and any exceptional event that occurs affecting the issuer’s sphere of operations and in any case at least twice per year. The companies for which UBI Banca acts as Sponsor or Specialist are covered in compliance with regulations
FERRARI 15 October 2019
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of the market authorities.
For further information please refer to www.ubibanca.com/equity-research
Valuation methodology
UBI Banca’s analysts value the Company subject to their recommendations using several methods among which the most prevalent are: the Discounted Cash Flow method (DCF), the Economic Value Added method (EVA), the Multiple comparison method, the SOP method and the NAV method.
The analysts use the above valuation methods alternatively and/or jointly at their discretion. The assigned target price may differ from their fair value, as it also takes into account overall market/sector conditions, corporate/market events, and corporate specifics (i.e. holding discounts) reasonably considered to be possible drivers of the company’s share price performance. These factors may also be assessed using the methodologies indicated above.
For further information please refer to www.ubibanca.com/equity-research.
Ranking system
UBI Banca’s analysts use an “absolute” rating system, not related to market performance. The explanation of the rating system is listed below:
Buy: if the target price is 15% higher than the market price, over the next 12 months.
Hold: if the target price is 15% below or 15% above the market price, over the next 12 months.
Sell: if the target price is 15% lower than the market price, over the next 12 months.
No Rating: the investment rating and target price have been suspended as there is not sufficient fundamental basis for determining an investment rating or target. The previous investment rating and target price, if any, are no longer in effect. Alternatively, No Rating is assigned in certain circumstances when UBI Banca is acting in any advisory capacity in a strategic transaction involving the Company.
Target price: the market price that the analyst believes that the share may reach within a one-year time horizon.
Market price: closing price on the day before the issue date of the report, appearing on the first page.
Distribution
Italy: This document is intended for distribution in electronic form to “Professional Clients” and “Qualified Counterparties” as defined by Legislative Decree 24 February 1998, n. 58 and by Consob Regulation n. 16190 dated 29.10.2007, as further amended and supplemented.
This Report has been released within 30 minutes from the timing reported on the front page.
IN THE UNITED KINGDOM, THIS DOCUMENT IS BEING DISTRIBUTED ONLY TO, AND IS DIRECTED ONLY AT PERSONS WHO (A) ARE (I) PERSONS FALLING WITHIN ARTICLE 19 OR ARTICLE 49 OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER 2005 (AND ONLY WHERE THE CONDITIONS CONTAINED IN THOSE ARTICLES HAVE BEEN, OR WILL AT THE RELEVANT TIME BE, SATISFIED) OR (II) ANY OTHER PERSONS TO WHOM IT MAY BE LAWFULLY COMMUNICATED; AND (B) ARE QUALIFIED INVESTORS WITHIN THE MEANING OF ARTICLE 2(1)(E) OF THE PROSPECTUS DIRECTIVE (DIRECTIVE 2003/71/EC), (ALL SUCH PERSONS BEING REFERRED TO AS "RELEVANT
FERRARI 15 October 2019
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PERSONS"). THIS DOCUMENT MUST NOT BE ACTED ON OR RELIED ON BY PERSONS WHO ARE NOT RELEVANT PERSONS. SWITZERLAND THIS REPORT DOES NOT CONSTITUE A PROSPECTUS WITHIN THE MEANING OF THE ARTICLE 652a OR ART. 1156 OF THE SWISS CODE OF OBLIGATIONS OR A LISTING PROSPECTUS WITHIN THE MEANING OF THE LISTING RULES OF THE SIX SWISS EXCHANGE OR ANY OTHER TRADING VENUES IN SWITZERLAND, OR A SIMILAR COMMUNICATION WITHIN THE MEANING OF ART. 752 OF THE SWISS CODE OF OBBLIGATIONS, AND HAS BEEN PREPARED WITHOUT REGARD TO THE SWISS LAWS AND REGULATIONS, AND DOES NOT CONSTITUTE AN OFFER TO SUBSCRIBE FOR, BUY OR OTHERWISE ACQUIRE ANY SECURITY OF THE COMPANY.
Copyright
This Report is being supplied solely for the recipient’s information and may not be reproduced, redistributed or passed on, directly or indirectly to any other person or published, in whole or in part, for any purpose without prior written consent of UBI Banca.
The copyright and intellectual property rights on the data are owned by UBI Banca Group, unless otherwise indicated. The data, information, opinions and valuations contained in this Report may not be subject to further distribution or reproduction, in any form or via any means, even in part, unless expressly consented by UBI Banca.
By accepting this Report the recipient agrees to be bound by all of the forgoing provisions.
Distribution of ratings
Equity rating dispersion in the past 12 months
Buy Hold Sell No Rating
89.8% 6.1% 2.1% 2.0%
Proportion on issuers to which UBI Banca has supplied investment banking services relating to the last 12 months
Buy Hold Sell No Rating
95.9% 100% 100% 100%
For further information regarding yearly and quarterly rating statistics and descriptions, please refer to www.ubibanca.com/equity-research.
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SERVIZIO STUDI
Head of Research Department
Giovanni Barone
Industry Research
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Equity Research
Enza De Vita
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Anna Cristina Visconti
Vincenzo Petrignano
Massimo Vecchio
+39.02.6275 3016
Paolo Manzoni
Oriana Cardani, CFA
Quantitative Analysis
Paolo Leoni
+39.02.6275 3017
Francesco Martinelli
Dario Fasani
+39.02.6275 3014
ECM & DCM
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Andrea Paolo Martini
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