ferrari n.v. · • flat market • electrification • gdp growth • economic uncertainties •...
TRANSCRIPT
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
CFA Institute Research Challenge
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
Latest Company FinancialsIndustry Valuation
• 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
Latest Company FinancialsIndustry Valuation
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
Latest Company FinancialsIndustry Valuation
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
Latest Company FinancialsIndustry Valuation
• 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%
Latest Company FinancialsIndustry Valuation
Luxury Industry
0
50
100
150
200
250
300
Value of the global personal luxury goods
market 1996-2019
+6%
CAGR
Latest Company FinancialsIndustry Valuation
• CHANGES IN COSTUMER SEGMENTS
• SUSTAINABILITY CONCERNS
• EMERGING MARKETS
• CORONAVIRUS OUTBREAK
Luxury Industry
Latest Company FinancialsIndustry Valuation
• CHANGES IN COSTUMER SEGMENTS
• SUSTAINABILITY CONCERNS
• EMERGING MARKETS
• 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
• CHANGES IN COSTUMER SEGMENTS
• SUSTAINABILITY CONCERNS
• EMERGING MARKETS
• CORONAVIRUS OUTBREAK
0%
20%
40%
60%
80%
Gen Z Millennials Gen X Baby Boomers Silvers
Sustainability's influence in purchasing
decisions for luxury goods
Yes No
Latest Company FinancialsIndustry Valuation
Luxury Industry
• CHANGES IN COSTUMER SEGMENTS
• SUSTAINABILITY CONCERNS
• EMERGING MARKETS
• CORONAVIRUS OUTBREAK
0
100
200
300
400
2008 2010 2012 2014 2016 2018E
Average Specific CO2 Emissions - Ferrari EU
Fleet
Latest Company FinancialsIndustry Valuation
Luxury Industry
• CHANGES IN COSTUMER SEGMENTS
• SUSTAINABILITY CONCERNS
• EMERGING MARKETS
• 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
Latest Company FinancialsIndustry Valuation
Luxury Industry
• CHANGES IN COSTUMER SEGMENTS
• SUSTAINABILITY CONCERNS
• EMERGING MARKETS
• CORONAVIRUS OUTBREAK
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
Latest Company FinancialsIndustry Valuation
Luxury Industry
• CHANGES IN COSTUMER SEGMENTS
• SUSTAINABILITY CONCERNS
• EMERGING MARKETS
• CORONAVIRUS OUTBREAK
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
Latest Company FinancialsIndustry Valuation
Further Investment Risks
Impact
Negligible Minor Moderate Significant Severe
Very likely
Likely 3
Possible
Unlikely
Very
unlikely
Lik
elih
ood
3. Political risks
•Brexit
•US-recent trade policies
•Italian political instability
Latest Company FinancialsIndustry Valuation
Further Investment Risks
Impact
Negligible Minor Moderate Significant Severe
Very likely
Likely 8
Possible
Unlikely
Very
unlikely
Lik
elih
ood
8. Corporate Governance Risk
Latest Company FinancialsIndustry Valuation
Automotive industry
• FLAT MARKET
• ELECTRIFICATION
• GDP GROWTH
• ECONOMIC UNCERTAINTIES
• CORONAVIRUS OUTBREAK
0
20
40
60
80
100Worldwide car sales 1990-2020 (mm
units)
Latest Company FinancialsIndustry Valuation
Automotive industry
• FLAT MARKET
• ELECTRIFICATION
• GDP GROWTH
• ECONOMIC UNCERTAINTIES
• CORONAVIRUS OUTBREAK
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
Latest Company FinancialsIndustry Valuation
Automotive industry
• FLAT MARKET
• ELECTRIFICATION
• GDP GROWTH
• ECONOMIC UNCERTAINTIES
• CORONAVIRUS OUTBREAK
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
Latest Company FinancialsIndustry Valuation
Automotive industry
• FLAT MARKET
• ELECTRIFICATION
• GDP GROWTH
• ECONOMIC UNCERTAINTIES
• CORONAVIRUS OUTBREAK
-100
-80
-60
-40
-20
0
20
2019 2020
Monthly YoY change in passengers car sales
in China (in percent)
Latest Company FinancialsIndustry Valuation
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
Latest Company FinancialsIndustry Valuation
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
Latest Company FinancialsIndustry Valuation
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
Latest Company FinancialsIndustry Valuation
Key predictions
Debt & Equity
Capex
Working Capital
Latest Company FinancialsIndustry Valuation
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
Latest Company FinancialsIndustry Valuation
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
Latest Company FinancialsIndustry Valuation
EV:
€ 26,887m
Minority
Interest: € 5mMkt Value:
€ 25,695m
Net Debt:
€ 1,192m
DCF Outcome
Latest Company FinancialsIndustry Valuation
TARGET PRICE € 138.24
DCF Outcome
Latest Company FinancialsIndustry Valuation
0
300
600
900
1,200
2020E 2024E 2028E 2032E 2036E
Nopat +Depreciation and amortization -CAPEX Free Cash Flow to Firm (FCFF)
DCF Input
Latest Company FinancialsIndustry Valuation
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
Latest Company FinancialsIndustry Valuation
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
Latest Company FinancialsIndustry Valuation
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
Latest Company FinancialsIndustry Valuation
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
Latest Company FinancialsIndustry Valuation
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
Latest Company FinancialsIndustry Valuation
Recommendation
Latest Company FinancialsIndustry Valuation
+ Exclusive brand
+ Stable past growth
- Coronavirus spread
- Shifts in automotive technology
- Increasing environmental awareness
- Decrease in brand loyalty in future
generations
SELL
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