From Bloomberg
In the spinoff of Ferrari later this year, Fiat Chrysler Automobiles NV wants investors to see the company as more than just a carmaker. “Ferrari has all the elements to be considered a luxury-good manufacturer,” Chief Executive Officer Sergio Marchionne said. “What we should do with the listing is to entirely develop that notion.”
Luxury-product companies such as Prada SpA and Hermes International SCA trade at more than 20 times earnings, while automakers are generally less than half that. Getting the most out of the Ferrari listing is critical to Marchionne’s plans to fund a 48 billion-euro ($57 billion) investment project aimed at lifting Fiat Chrysler deliveries 60 percent to 7 million cars by 2018.
Fiat Chrysler plans to sell shares in Ferrari by late fall, and will finish a draft of the filing by the first quarter, the CEO said. Selling a 10 percent holding in Ferrari is part of a plan to raise $5 billion. There’s also demand for a possible Ferrari bond, to be sold before the spinoff and after a cash transfer between Fiat and Ferrari, the executive said. “There are many people who want to help us,” Marchionne said. “There is a very fertile market.”
Analyst Doubts
Analysts have raised doubts about the Maranello, Italy-based unit’s prospects of being rated as a luxury-goods company because of the higher costs of developing and manufacturing high-performance vehicles compared with making stylish handbags. Credit Suisse estimated Ferrari’s market value at 5.8 billion euros, while BNP Paribas said the company could be worth as much as 10 billion euros.
Even as a pure carmaker Ferrari has more potential and could “technically” boost production to 10,000 vehicles from 7,000 cars a year now, Marchionne said. Still, Ferrari will always keep production below demand to preserve exclusivity, he said.
Powerful Brand
Ferrari was named the world’s “most powerful” brand last year by consulting company Brand Finance, beating even Apple Inc. That kind of image will help Ferrari survive as an independent manufacturer, even in the auto industry where most luxury brands have sought shelter in larger groups like Volkswagen AG’s control of Bentley and Lamborghini.
“Ferrari is very strong and will manage to follow its way even alone,” Dieter Zetsche, CEO of Mercedes-Benz parent Daimler AG, said at the Detroit show. “The spinoff from FCA won’t damage the future” of Ferrari.
After listing 10 percent of Ferrari in the U.S., Fiat Chrysler will distribute its remaining 80 percent holding in the division to its own shareholders. Ferrari Vice Chairman Piero Ferrari owns the remaining 10 percent of the company. Along with the listing, Ferrari may sell bonds, said Marchionne, who is also the supercar unit’s chairman.
Source: Reported by Tommaso Ebhardt; edited by Chris Reiter, Naomi Kresge and Tom Lavell.
From Reuters
Ferrari faces a battle to persuade investors that it should be priced as a high-flying luxury goods stock, given a carmaker’s margins and the heavy investment required to make its prancing horse logo a big attraction on other exclusive lines.
Few would question the business acumen of Sergio Marchionne, redoubtable chief executive of Fiat Chrysler Automobiles (FCA), but his strategy for squeezing every last drop of value from the listing of the group’s illustrious Italian sports car brand has certainly raised a few eyebrows.
“Ferrari is capable of being a fully-fledged luxury brand,” Marchionne declared last month, setting his stall out to target the kind of high-end valuation multiples enjoyed by the likes of LVMH and Richemont.
But for all Ferrari’s Formula One racing pedigree, exclusivity exemplified by the LaFerrari supercar’s 1 million euro price tag and a production cap that maintains a healthy customer waiting list, the company has its work cut out if it is to join a sector that trades at about 20 times future earnings. That’s more than double the average for carmakers.
It has to be acknowledged that Ferrari is no laggard in the money-making stakes, with profit nearly tripling over the past decade and its margins of 14 percent unmatched by any carmaker bar Porsche. But those margins are well below Prada’s 26 percent and have been under pressure from rising costs. Revenue growth has been more gentle than that of most European luxury stocks and its capital expenditure and research and development requirements are more than double, depressing its return on capital.
Short on Detail
While the multiples investors will pay depend on Ferrari’s ability to grow, it is hard to see what the company has beyond its cars that would fit the luxury mold. Ferrari has the capacity to raise annual production to 10,000 vehicles a year from 7,000, but Marchionne has made clear that output will be kept below demand to protect the brand’s exclusivity and told analysts in a post-results conference call last month that further detail on his strategy would not be forthcoming until nearer the IPO.
Ferrari’s merchandising division might seem an obvious starting point, but Marchionne has denied this. In any case, the elevated prices of T-shirts, bags and shoes bearing the prancing horse are well below those commanded by luxury goods. Its theme park in Abu Dhabi is also accessible to anyone willing to fork out 250 dirham ($70) for a one-day pass.
“If you’re already available to everyone, then making your way back up to the luxury level is nearly impossible,” said Manfred Abraham at brand-building consultancy BrandCap. “They would have to stop doing a lot of things and start again, which is a massive investment … how attractive is that to shareholders?”
Investors have also been left scratching their heads over Marchionne’s statement that car making, which accounts for the bulk of sales and profit, is “incidental” to Ferrari. As shown by Porsche Design, tire maker Pirelli’s PZero and Bugatti’s move into apparel, previous attempts by automotive groups to stretch beyond their core products have not provided a major revenue boost. Then there’s the Ferrari logo and colors, which analysts have said make it a difficult sell in the fashion and design world.
Luxury Alliance?
There was talk of a luxury alliance with other opulent Italian brands to rival conglomerates such as Kering, but the concept has been dismissed by two bankers close to the company.
Analysts, meanwhile, have pointed to the potential for exclusive clubs and hotels for the super-rich, or Ferrari moving into high-value motorcycles and boats. However, Bernstein analyst Max Warburton remains skeptical, suggesting that the Ferrari brand could be extended at a luxury premium only to watches, perfumes and eyewear. “A sports car maker has little competitive advantage when it comes to producing and selling personal luxury goods,” he said.
Regardless of its prospects as a true luxury goods business, the spinning off of Ferrari is far from a car crash. The divorce will unlock the value of a business that made 12 percent of FCA’s profit last year. It could also pave the way for FCA to attempt a tie-up with another carmaker, perhaps focusing on the Asian market, bankers have said. Yet how investors interpret Marchionne’s bold statements remains unclear, with analysts’ estimates for Ferrari’s worth ranging anywhere between 5 billion euros and 10 billion euros.
“With luxury it’s a lot about emotion and allure,” one U.S. investment banker said. “People may not fully buy into Marchionne’s argument, but they will put money on Ferrari on the promise of what it represents and could be.”
Source: Reported by Agnieszka Flak and Ed Taylor in Frankfurt; Editing by David Goodman.