Stock Market Analysis and Personal Finance

Mr. Bernstein

The Ferrari IPO

October, 2015

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Stock Market Analysis & Personal Finance Mr. Bernstein

What is an IPO?• IPO = Initial Public Offering• Some companies do not want their shares to

trade freely in an open market. Their stock is known as Private Equity.

• When the owners of a private company wish to sell shares to the public for the first time, it is known as an IPO.

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Stock Market Analysis & Personal Finance Mr. Bernstein

Widely known private companies• Startups (Facebook, Twitter, Alibaba)• Family Businesses (M&M Mars)• Divisions of larger companies (Heinz, Fruit of the

Loom, Dairy Queen)

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Stock Market Analysis & Personal Finance Mr. Bernstein

Why do companies go public?• Can raise funds faster and more easily than in

private market• Convert holdings into cash to be deployed elsewhere

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Stock Market Analysis & Personal Finance Mr. Bernstein

Why is Ferrari Going Public?• Currently 80% owned by Fiat Chrysler and 10%

owned by the Ferrari family• Wants to fund a 5-year expansion plan• Looking to become a luxury brand, not just a car manufacturer

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Stock Market Analysis & Personal Finance Mr. Bernstein

Ferrari IPO Basics• Selling ~17mm shares at a price range of $48-$52• Likely timing is next Monday • Ticker will be RACE

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Stock Market Analysis & Personal Finance Mr. Bernstein

The IPO Process• Ferrari works with one or more Investment

Bankers• Investment Banks– Work with investors and corporations– May arrange “road show” to formally allow Ferrari to

tell their story to potential investors– Help both Ferrari and potential investors set a fair

price– May guarantee a price to Ferrari

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Stock Market Analysis & Personal Finance Mr. Bernstein

The IPO Process• Can investors use Technical Analysis?• Here is a chart of Ferrari’s recent price:

• It hasn’t traded yet!!

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Stock Market Analysis & Personal Finance Mr. Bernstein

The IPO Process• Can investors use Fundamental Analysis?• Ferrari management will provide potential

investors their estimates of future earnings• They will also provide their business strategies• Investors can assign a P/E ratio to the earnings

estimates to determine a fair price• The IPO price is, in general, at a modest discount

to consensus fair value to insure a smooth sale

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Stock Market Analysis & Personal Finance Mr. Bernstein

The IPO Process• Investment Banks and Ferrari both want the

stock to rise following the IPO to insure investors will come back next time they want to raise funds