tag:blogger.com,1999:blog-8152901575140311047.post6552325563051634398..comments2024-03-29T07:41:47.433-04:00Comments on Musings on Markets: The Ferrari IPO: A Price Premium for the Prancing Horse?Aswath Damodaranhttp://www.blogger.com/profile/12021594649672906878noreply@blogger.comBlogger13125tag:blogger.com,1999:blog-8152901575140311047.post-33961930055163641562016-02-05T18:07:46.299-05:002016-02-05T18:07:46.299-05:00This comment has been removed by the author.Anonymoushttps://www.blogger.com/profile/17937513040217277835noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-43576409562775140672015-11-18T14:59:22.294-05:002015-11-18T14:59:22.294-05:00Apologies, should have done some more diligence be...Apologies, should have done some more diligence before posting.<br /><br />It doesn't look like the increasing EBIT margin was due to pricing power. It looks like units sold was up considerably (~20%), but COGS was actually down $10 million, so the recent margin expansion does look like it can be attributed to depressed input costs.<br /><br />My question about EBIT vs EBITDA still stands. <br /><br />I did notice that the EBIT numbers you used track pretty close to FCF, if you include CapEx and Purchases of Intangibles (that's how Morningstar organizes CFI outflows). So, even if you agree with my assertion about adding back D&A after multiplying EBIT by (1-t), it doesn't really impact the model, since D&A is roughly equal to CFI outflows over the past couple of years.<br /><br />That's what you did, right? Netted CFI against D&A, and then just skipped those steps?<br /><br />I'm going to go read into those CFI numbers...what are all of these intangibles they are purchasing?!Anonymoushttps://www.blogger.com/profile/15708391816278847454noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-55799213029576209922015-11-17T21:59:54.230-05:002015-11-17T21:59:54.230-05:00Hi - you mentioned that 12x EV/EBITDA was your pri...Hi - you mentioned that 12x EV/EBITDA was your price, or around there. Why did you exclude D&A, and only use EBIT, in your calculation? That would add maybe ~280/yr to your EBIT number, which gets us to $680.<br /><br />Lastly, and as T Mng mentioned, they have operating leverage and pricing power, and that (accompanied by decent margins) is a wonderful combination. Your EBIT assumption was 400, but TTM EBIT is 500, so let's add 100...We are at $780 now.<br /><br />Also, and of particular note, look at the numbers for the beginning of this year...EBIT margins are steadily increasing largely because of revenue increases (presumably, price hikes), and to a lesser extent a smaller COGS #. If COGS was the driver, I would say that maybe the margin boost was from low commodity prices, and transitory. But, COGS is not materially lower, and sales is materially higher...did they perhaps decide to start being more aggressive with their pricing power once they decided to IPO? If I owned the company pre-IPO, I would certainly have done that, if for no other reason than than to draw attention to that particular attribute.<br /><br />Anyways, 500+280=780, Mkt cap is 8.75, (.6) net debt, EV/EBITDA = 8.15/7.8 = 10.5...<br /><br />Why did you not add D&A back when calculating FCF in your DCF? That would have gotten you a much higher equity value, and probably explains why my multiple (which includes D&A) is so much lower than yours, even though my market cap (equivalent to your equity value from DCF) assumption is much higher. Also, I am not sure why you excluded net debt in your EV/EBITDA calc (B45 on valuation output tab). That $600 million is a real $600 million - it is worth something!<br /><br />I'm not disagreeing with your 12.5x EV/EBITDA multiple, I'm just disagreeing with the number you used for FCF (in the DCF), and also the EBIT number you used to calculate your multiple. You might say that exlcuding D&A from both cancels out, but this is simply not true. It might have a net-zero effect on the multiple, e.g., if you exclude D&A from your DCF and also exclude it from the denominator in your EV/EBITDA calc, then the EV/EBITDA multiple very well could be the exact same as it would have been had you included D&A in both. But, that is not the issue. The issue is that when you multiply 12.5 by 460, as you did, you get a much different number than you would if you multiplied 12.5 by 800, as I did. <br /><br /> With EBITDA of maybe ~800 for the full 12 months ending December 2015, a mkt cap of $8.75, and net debt of -.6, isn't the company undervalued? At a 12.5x multiple of ~$800 million Euro (+20 compared to our 780 figure, to round out 2015 but in a conservative fashion), we arrive at an EV of $10 billion, or Mkt Cap of $10.6 billion, which is a little over 20% higher than the current market price...<br /><br /><br />Anonymoushttps://www.blogger.com/profile/15708391816278847454noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-36389716655864501502015-11-09T20:44:10.519-05:002015-11-09T20:44:10.519-05:00Ferrari has essentially been leaving a lot of mone...Ferrari has essentially been leaving a lot of money on the table for the past decade. If I gave you 300k cash to go buy an F12 Berlinetta, you would be placed on a waiting list that could last a couple of years. This is because Ferrari has purposely chosen to pursue a strategy of "exclusivity". There's a reason the word "exclusivity" shows up over and over again in the prospectusRozapkhttp://rozapk.comnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-79401874097021684332015-11-04T08:09:58.944-05:002015-11-04T08:09:58.944-05:00Hello Professor,
Why is the beta of Ferrari so low...Hello Professor,<br />Why is the beta of Ferrari so low? being a part of the super luxury segment shouldnt it be higher? around 1.5 to 2?<br />Thanks<br />GaneshAnonymoushttps://www.blogger.com/profile/12189873161298185715noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-26918515453074700362015-10-20T12:10:09.216-04:002015-10-20T12:10:09.216-04:00ferrari margins are IFRS, not GAAP. seen some sel...ferrari margins are IFRS, not GAAP. seen some sell-siders say gaap margins probably lower.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-87341109927747961562015-10-19T00:53:01.579-04:002015-10-19T00:53:01.579-04:00Hi Prof.,
This is not related to this article but...Hi Prof.,<br /><br />This is not related to this article but thought to put it as I know you read most, if not all comments.<br /><br />With Walmart shares and the recent adjustments, do you have any current valuation on the stock? Stocks at this size usually not 'fun' to value ;) ..... I kinda have a feeling it is on your list of posts so I thought I ask ... I am having a hard time and based on my rough valuation, to me investors are overacting and there could be a buy time (some limit orders) ... let me know if anything you got on hand.<br /><br />Again, thanks for all your posts. I personally appreciate the time and efforts you put on your blog, videos and etc to interact with all of us.<br /><br />Cheers,Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-10223520055354500472015-10-18T16:11:18.821-04:002015-10-18T16:11:18.821-04:00Ferrari has essentially been leaving a lot of mone...Ferrari has essentially been leaving a lot of money on the table for the past decade. If I gave you 300k cash to go buy an F12 Berlinetta, you would be placed on a waiting list that could last a couple of years. This is because Ferrari has purposely chosen to pursue a strategy of "exclusivity". There's a reason the word "exclusivity" shows up over and over again in the prospectus. The cap has been voluntary, the "shackles" were placed by the company itself. The previous head of Ferrari (Luca di Montezemolo) did not want to increase production but Marchionne did, as he realizes that a couple thousand more Ferraris around the world is not going to make a big difference to "exclusivity" given how rare the cars already are (plus there are now more pockets of wealth around the world for Ferrari to sell into). The previous head of Ferrari was effectively kicked out because of his unwillingness to expand the Ferrari brand. Even at 9k units sold, Ferrari will be leaving money on the table, but less than before. <br /><br />Ferrari is not your typical car company, it has and continues to care more about it's brand than maximizing profits. Cars don't appreciate in value after they have been used but many Ferrari models do. A lot of the purchases of customers are recurring, mainly because a) they love Ferrari cars and b) if they want access to the more exclusive, higher end Ferrari models like say a LaFerrari, they need to show loyalty to the brand (ie. need have purchased 5-6 Ferraris before). The demand side is something Ferrari does not need to worry about, the excess demand is there at 7k units supplied and it will be there at 9k units supplied. The company's concerns are more on maintaining the right level of supply so to not dilute the brand (but also not being "too exclusive" either where people never see a Ferrari on the road). Ferrari's customers (1%ers) are more insensitive to price increases than the average middle or upper middle class guy so that combined with excess demand has given the company pricing power (historically it has raised prices by more than inflation). Ferrari saw a negligible drop in revenue and units sold during the financial crisis, that's how easily it has been able to fulfill a demand of ~7k units/year. It's basically the only car company (though it also has other revenue streams outside of car sales) in the world that is not cyclical. Marchionne is correct in stating that Ferrari should be valued more like a luxury goods company rather than a car company. As he expands production to take advantage of the operating leverage and achieves operating margins that are more in line with luxury products than auto OEMs (Ferrari already has best margins in auto industry this year, last year it was second to Porsche I believe), this will become obvious to the broader market. Anonymoushttps://www.blogger.com/profile/09158585131003414162noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-76398619239194910892015-10-18T09:09:25.445-04:002015-10-18T09:09:25.445-04:00T Mng,
I am puzzled. If Ferrari has all this untap...T Mng,<br />I am puzzled. If Ferrari has all this untapped potential (in terms of growth, capacity and being able to raise prices), why has it not been able to do it so far? As I see it, as part of FCA, and run by the same management team that will run it after the IPO, no one put shackles on the company's growth and FCA needed cash desperately. It seems like magical thinking that somehow mangers will behave differently, if Ferrari is a stand alone company, reporting its own numbers. Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-14651663405078283602015-10-16T12:34:03.308-04:002015-10-16T12:34:03.308-04:00As an Italian and at the same your constant musing...As an Italian and at the same your constant musing on markets follower I was just about to ask you if you could twit about Ferrari IPO and you actually did it. Wonderful, going to see in detsils the valuation.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-18725593546258668742015-10-16T06:52:48.926-04:002015-10-16T06:52:48.926-04:00superb analysis. superb analysis. Sandeepnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-12901100299091671242015-10-16T02:30:16.938-04:002015-10-16T02:30:16.938-04:00Hello Professor Damodaran,
Have you considered t...Hello Professor Damodaran, <br /><br />Have you considered the income Ferrari receives from licensing? I'm not sure if this is broken out in the prospectus but they do sell the name for use on everything from t-shirts to pencil erasersAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-61209081720458445412015-10-15T21:46:42.302-04:002015-10-15T21:46:42.302-04:00The company has said that it will not need to inve...The company has said that it will not need to invest in PPE to scale up production. Each car is sold at a 60% margin. Most of the SG+A expense and R+D is NOT related to selling cars (but to the company's formula one activities). This means that the company will be able to take advantage of operating leverage by increasing production. EBIT margins at 9k cars would be well above 25% (with revenue around 4 billion, operating income will exceed 1 billion by 2018). I feel your valuation is not taking this into account. A lot of people aren't realizing this but Ferrari is actually a potential double over 2-3 years based on current valuation, and this is without taking into account additional revenue that the company will be generating from growth in engine sales.Anonymoushttps://www.blogger.com/profile/09158585131003414162noreply@blogger.com