Ferrari N.V. · • FLAT MARKET • ELECTRIFICATION • GDP GROWTH • ECONOMIC UNCERTAINTIES •...

Ferrari N.V.

Ticker: RACE:IM

Sector: Luxury Cars l Industry: Automotive

CFA Institute Research Challenge

CFA Institute Research Challenge | Team Cavers

Milan – 2020, March 3rd

SELL


Overvalued

Target Price: €138.24

Downside Potential: -12.9%

Share Price (Feb. 13th): €158.24

Ticker: RACE:IM

Sector: Luxury Cars l Industry: Automotive

Coronavirus spread

Latest Company FinancialsIndustry Valuation

0

2,000

4,000

6,000

Jan 20 Jan 22 Jan 24 Jan 26 Jan 28

Cases in China

0

2,000

4,000

6,000

Feb 25 Feb 27 Feb 29 Mar 2 Mar 4

Cases in Italy

Revenue streams


• 1 CORPORATE

• 2 MARKET SEGMENTS

• 4 REVENUE GENERATING DIVISIONS74.10%

8.30%

14.80%2.80%

Cars and spare parts

Engines

Sponsorship, commercial and brand

Other

Competitive environment


0

1

2

3

4

5

Bargaining

power of Buyers

Bargaining

power of

suppliers

Rivalry with

existing

competitors

Threat of new

entrants

Threat of

substitutes

Ferrari Average automotive and luxury

• NOT THE AVERAGE BETWEEN AUTOMOTIVE

AND LUXURY

• LOW THREAT OF NEW ENTRANTS AND

BARGAINING POWER OF BUYERS

• HIGH RIVALRY WITH EXISTING

COMPETITORS

Corporate governance


EXOR

Nederland

NV

24%

Ferrari (Piero)

10%

Baillie

Gifford & Co.

7%T. Rowe Price

Associates,

Inc.

5%

Others

54%

Shareholder structureDUTCH GOVERNANCE CODE AND NYSE

GOVERNANCE STANDARDS, WITH IMPERFECTIONS:

• MORE THAN ONE MEMBER OF THE SUPERVISORY

BOARD HOLDS MORE THAN 10% OF THE SHARES

• NO RETIREMENT SCHEDULE

• MEMBERS OF THE BOARD DO NOT ATTEND

GENERAL SHAREHOLDER MEETING

Governance issues


• ELKANN’S CONFLICT OF INTERESTS

• LOYALTY VOTING PROGRAM

FCA N.V.

Exor N.V.

Ferrari N.V.

Chairman and Chief

executive Officer

Executive Director

Chairman and

Executive Director

41.1% Voting Power

33.6% Voting Power

Mr. John Elkann

Ferrari’s global presence 2019

29%

15%

Americas

APAC

EMEA

48%

Source: Company Information

MainlandChina,

Taiwan, Hong

Kong

8%


Luxury Industry

0

50

100

150

200

250

300

Value of the global personal luxury goods

market 1996-2019

+6%

CAGR


• CHANGES IN COSTUMER SEGMENTS

• SUSTAINABILITY CONCERNS

• EMERGING MARKETS

• CORONAVIRUS OUTBREAK

Luxury Industry





• CORONAVIRUS OUTBREAK0%

50%

100%

2018 2019 2025F 2035F

Global luxury goods sales by generation

Generation Z Generation Y

Generation X Baby Boomers

Silent generation

EE

Luxury Industry





0%

20%

40%

60%

80%

Gen Z Millennials Gen X Baby Boomers Silvers

Sustainability's influence in purchasing

decisions for luxury goods

Yes No


Luxury Industry





0

100

200

300

400

2008 2010 2012 2014 2016 2018E

Average Specific CO2 Emissions - Ferrari EU

Fleet


Luxury Industry




• CORONAVIRUS OUTBREAK0%

20%

40%

60%

80%

100%

2008 2012 2016 2020 2025

Luxury good spending in China

vs the World

China Rest of the World


Luxury Industry





0

3,000

6,000

9,000

2016 2017 2018 2019

Ferrari's shipments by region

2016-2019

Rest of APAC

MAINLAND CHINA, HONG KONG & TAIWAN

AMERICAS

EMEA


Luxury Industry





Source: New York TimesLatest Company FinancialsIndustry Valuation

Source: New York TimesLatest Company FinancialsIndustry Valuation

Source: Ministero della Salute

Further Investment Risks1. Fundamental shifts in industry sectors

2. Luxury goods demand volatility

3. Political Risks

Brexit

US-recent trade policies

Political instability in Italy

4. Pandemic risks

5. Interest & Currency rates fluctuations

6. Tax regulations risk

7. Liquidity Risk

8. Corporate Governance risk

9. Sustainability risks

10. Formula 1 Team’s performance.

11. Credit Risk

12. Low volume strategy

Impact

Negligible Minor Moderate Significant Severe

Very likely 1 & 4

Likely 8 2, 5 & 6 3 & 9

Possible 12

Unlikely 7 & 11

Very

unlikely 10

Lik

elih

ood


Further Investment Risks

Impact


Very likely

Likely 3

Possible

Unlikely

Very

unlikely

Lik

elih

ood

3. Political risks

•Brexit

•US-recent trade policies

•Italian political instability


Further Investment Risks

Impact


Very likely

Likely 8

Possible

Unlikely

Very

unlikely

Lik

elih

ood

8. Corporate Governance Risk


Automotive industry

• FLAT MARKET

• ELECTRIFICATION

• GDP GROWTH

• ECONOMIC UNCERTAINTIES


0

20

40

60

80

100Worldwide car sales 1990-2020 (mm

units)


Automotive industry

• FLAT MARKET

• ELECTRIFICATION

• GDP GROWTH



0%

20%

40%

60%

80%

2020 2025 2030

EVs: global sales breakdown by segment

2020-2030

Full and mild hybrids

Plug-in hybrid electric vehicles

Battery electric vehicles


Automotive industry

• FLAT MARKET

• ELECTRIFICATION

• GDP GROWTH



5.8%4.6%

1.7%

4.3% 4.2%

1.6%

CHINA EMERGING

MARKETS

ADVANCED

ECONOMIES

Estimated impact of Covid-19 on the

growth of global GDPs

Q1 old estimate

Q1 2020 new estimate


Automotive industry

• FLAT MARKET

• ELECTRIFICATION

• GDP GROWTH



-100

-80

-60

-40

-20

0

20

2019 2020

Monthly YoY change in passengers car sales

in China (in percent)


Sales Growth

Divisions

Cars & Spare

parts

Sponsorships &

Brand

Others

CAGR

Engines

+10.59 %

+9.4 %

-24.9 %

+9 %

0

2000

4000

6000

2019A 2020E 2021E 2022E 2023E 2024E

Cars and spare parts Sponsorship & Brand

Others Engines


COGS

EBITDA

EffectiveTax Rate

Net Margin

40.2%

31.2%

20.2%

18.5%

Margin Performance Drivers

37%

33.7%

27.9%

17%

Current Forecast

2028

Lower COGS

Technological Developpement

Conservative

High Tax Rate


Source: Company information

Debt & Equity

Capex

Working Capital

Key predictions

Source: Company information

58 164

95

Days of

Inventory

Days of

Receivables

Days of

Payables


Key predictions

Debt & Equity

Capex

Working Capital


0

1,000,000

2,000,000

3,000,000

4,000,000

2018A Dec '20 Dec '22 Dec '24 Dec '26 Dec '28

PP&E Depreciation Intangible Assets

Amortization Capex Total

Source: Team Estimates, Company Data

Key predictions

Source: Team Estimates, Company Data

Debt & Equity

Capex

Working Capital


0

1,000,000

2,000,000

3,000,000

2015A 2017A 2019E 2021E 2023E 2025E 2027E

Net Debt to Equity

Net Debt Equity

PV of FCFs

€ 11,918m

Discounted TV

at g = 2.5%

€ 14,970m

56%44%

DCF Outcome


EV:

€ 26,887m

Minority

Interest: € 5mMkt Value:

€ 25,695m

Net Debt:

€ 1,192m

DCF Outcome


TARGET PRICE € 138.24

DCF Outcome


0

300

600

900

1,200

2020E 2024E 2028E 2032E 2036E

Nopat +Depreciation and amortization -CAPEX Free Cash Flow to Firm (FCFF)

DCF Input


Fade-Out StageForecasted Financials

0%

10%

20%

30%

40%

0

2,000

4,000

6,000

2020E 2024E 2028E 2032E 2036E

Average CE ROIC

DCF Input


Fade-Out StageForecasted Financials

WACC assumptions

Risk Free Rate (𝑹𝒇) 0.10%

Market Risk Premium (MP) 5.97%

Cost of Equity (𝑲𝒆) 6,41%

Beta (ß) levered 0.90

Cost of Debt (𝑲𝒅) 0.40%

Tax rate 27.90%

DCF Input


FCFF 2038

€ 927m

2.5%

Growth

Rate

Terminal

Value

€ 14,970m

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%

2019 2024 2029 2034

Growth UHNWI

Terminal Value


Terminal Value Growth

2.00% 2.25% 2.50% 2.75% 3.00%

Bet

a

0.70 194.74 215.02 242.76 283.04 346.81

0.80 151.84 162.39 175.70 193.03 216.52

0.90 124.60 130.79 138.24 147.39 158.86

1.00 105.67 109.60 114.19 119.60 126.10

1.10 91.70 94.34 97.34 100.80 104.82


Terminal Value

44x

31x

Luxury

BenchmarkTarget Price

Median

Average 166€

118€

17x

8x

Automotive

BenchmarkTarget Price

Median

Average 113€

45€

Price Range

€ 100

€ 160

€ 140

€ 120

€ 50

€ 166

€ 45

€ 113

Multiples

€ 118


Recommendation


+ Exclusive brand

+ Stable past growth

- Coronavirus spread

- Shifts in automotive technology

- Increasing environmental awareness

- Decrease in brand loyalty in future

generations

SELL


Q&A SESSION

Thank You for your Attention

Ferrari N.V. · • FLAT MARKET • ELECTRIFICATION • GDP GROWTH • ECONOMIC UNCERTAINTIES •...

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