THEPRANCINGHORSEPREMIUM:FERRARI’SIPO

The“other”ridesharingcompany!

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Ferrari:TheBackStory

¨  TheFerraristorystartedwithEnzoFerrari,aracingcarenthusiast,starKngScuderiaFerrariin1929,toassistandsponsorracecardriversdrivingAlfaRomeos.

¨  Ferrariasacarmakingcompanywasfoundedin1947,withitsmanufacturingfaciliKesinMaranelloinItaly.

¨  Inthemid-1960s,infinancialtrouble,EnzoFerrarisolda50%stakeinthecompanytoFiat.Thatholdingwassubsequentlyincreasedto90%in1988(withtheFerrarifamilyretainingtheremaining10%).

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TheFerrariLegend

¨  Fromtheracetracks:ThecompanyacquireditsracinglegendstatusfromwinningonmoreFormula1racesthananyothercompanyinhistory.

¨  Fromcelebrityconnec2ons:someofFerrari'sstandingcomesfromitsconnecKontocelebriKes.FromThorBaKstatoJusKnBiebertoKylieJenner,theFerrarihasbeenaninstrumentofmisbehaviorfor(usuallyyoungandrich)celebriKes.

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Theautobusinessisabadone

¨  Withlowrevenuegrowth:Revenuesgrewonly5.63%ayearfrom2005to2014,inspiteoftheboostfromemergingmarketsales.

¨  Poorprofitmargins:Themedianpre-taxoperaKngmarginacrossallglobalautocompaniesisonly4.46%andasignificantproporKonhaveoperaKnglosses.

¨  Andbigreinvestmentneeds:TradiKonalinvestmentsinplantandequipment(andassemblylines),supplementedwithR&D(asthetechcomponentgrows)haspushesthisexpenseuptoalmost5%ofrevenues.

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ThesavinggraceforFerrari

¨  Ultraluxuryautomobilesareseeingrevenuesgrowfasterthantherestoftheautobusiness,primarilyasaresultoftheriseoftherichinAsia.(Ferrari’ssaleshavebeenflatforthelastfiveyears)

¨  ThesecompanieshaveamongthehighestoperaKngmarginsamongtheautocompanies(Withan18.2%operaKngmargin,Ferrariranksinthe95thpercenKle.

¨  BysKckingtoalowgrowthstrategy,Ferrarihasbeenabletokeepitsreinvestmentneedsmodest.

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TheFerrariValueProposiKon

¨  Styling:AFerrariisaworkofart,andthecompanyspendssubstanKalamountsonstylingandthelikledetailsthatgointoeveryFerrari.

¨  Speed:Whatmoreistheretosay?IfyouhavedreamedofbeingaFormula1driver,thisisaboutascloseasyoucanget..

¨  Story:ThecarcomeswithastorythatdrawsasmuchfromitscelebrityconnecKonsasitdoesfromitsspeedexploits.

¨  Scarcity:Notwithstandingthefirstthreepoints,itwouldbejustanotherluxurycarifeveryonehadone.So,ithastobekeptscarcetocommandthepricesthatitdoes,bothasanewcarandinitsusedversions.

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Ferrari:AnExclusiveGlobalClub

Ferrari sold only 7255 cars in 2014, barely changed from how many it sold in 2008.

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TheStatusQuoNarraKve

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TheRevitupnarraKve

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Whereisthebrandnamepremium?

Ferrari(my

es+matedvalue) AutoSector Reasonfordifference

EV/Sales 2.10 0.94Ferrari'soperaKngmarginis18.2%versusIndustryaverageof6.58%.

EV/InvestedCapital 1.97 1.02

Ferrariearnsamuchhigherreturnoncapital(14.56%)thanthesector(6.68%)

EV/EBITDA 12.57 9.05FerrariEBITDA/Investedcapitalis15.68%versusIndustryaverageof14.45%.

PE 22.87 10.00FerrarihasadebtraKoof9.43%versusIndustryaverageof39.06%.

PBV 2.56 1.29Ferrari has a slightly higher ROE and lower equity risk (because of less debt)

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TheIPOTwists

¨  Useofproceeds:InthisIPO,thebilliondollarsexpectedtoberaisedfromtheofferingwillgotoFiatforcashingoutsomeofitsownershipstake,andthusnotbenefitFerraristockholders.Thereisthereforenoneedtoaddtheseproceedsbacktothecashbalance(asIwouldhave,iftheIPOproceedshadbeenretainedbythefirm).

¨  Numberofshares/IPOpricepershare:TthenumberofsharesissKllinflux(noKcealltheemptyspacesintheprospectus).ThesecondisthatthepersharevaluewillbeafuncKonofthenumberofsharescreatedinthecompany.

¨  Control:TheexisKngownerswillgettwicethevoKngrightsontheirshares,relaKvetothethosewhobuysharesintheIPO,fortheirloyalty.Thetwobigowners,Exor(theinvestmentfundfortheAgnellifamily)andtheFerrarifamilywillcontrol49ofthevoKngrightswithabout33%oftheshares.ThesharesthatyouandIwillhaveachancetobuyattheIPOwillbethelow-voKngrightshares.Idon'tseemuchofadiscountonthesesharessinceevenwithouttheaddiKonalvoKngrights,itisunlikelythatanyonecanforcethecompanytochangeitsoperaKons,ifthatchangeisagainstthewishesoftheAgnelli/Ferrariclan.

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Tobuyornottobuy?

¨  Ferrariisaniconicbrandnameanditwillundoubtedlybemarketedassuch.Investorsmayverywellpriceinapremiumtoreflectthatbrandname.

¨  Thebrandnamevaluecomeswithacatch,whichisthatitderivessomeorabigporKonofthatvaluefromexclusivity.

¨  Toarriveatavalueof$11or$12billion,youneedanarraKvewhereFerraricandoublecarssoldwhilepreservingapricepremiumforthecars.