Can Ferrari really cut it in luxury beyond supercars?
By Agnieszka Flak
MILAN (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)(FCHA.MI: Quote)(FCAU.N: Quote), 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 (LVMH.PA: Quote) and Richemont CFR.VX.
The 62-year-old said Ferrari is worth up to 10 billion euros ($11.3 billion), eyeing an initial public offering (IPO) slated for the first half of this year and hoping for a chunky windfall to boost FCA's own ambitious five-year investment plan.
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 (VOWG_p.DE: Quote).
But those margins are well below Prada's (1913.HK: Quote) 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. Continued...