Los Pollos Hermanos
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Ticker: RACE.MI - RACE.US Warming up the engines; initiate with a BUY Industry: High performance luxury cars Current price: EUR 159,75 at 14/02/2020 12-months Target Price: EUR 190,8 (+20,2% total return)
Initiation of coverage: 17/02/2020
Stock Data 14th February 2020 TOP GEAR: Ferrari Price € 159,75 Still (un)exploited growth opportunities; initiating with a BUY Bloomberg code RACE US | RACE MI We issue a BUY recommendation for Ferrari N.V. (RACE.MI), with a DCF-based target price of EUR 190,8, representing a Mkt Cap € mn 29.692 +20,2% total return on 14th February 2020 closing price (EUR 159,75). After an in-depth analysis, we believe that (i) Ferrari’s Free Float 61,70% product diversification strategy, (ii) its demonstrated strong pricing power and (iii) tremendous long term Shares out. (mn) 185.87 expansion opportunities in specific countries are still elements not fully priced by the market. Ferrari’s success will depend 52-weeks range 108,95 - 160,6 on its ability to (i) preserve the brand exclusivity (as we expect shipments to reach the 13.000 units in 2024E), (ii) exploit the Avg. daily volumes 92.614 price lever by also moving its existing clients from the GT sector to the more profitable Sport and Icona (as we model the IPO date 20th October 2015 Average Selling Price - ASP- to double by 2029E) and (iii) complete the hybrid revolution.
Relative Share Price performance - Exhibit 01 A controlled big expansion 350% In our view, given (i) the launch of both Ferrari Roma (entry level model) and Purosangue (SUV), (ii) the proved pricing power 300%
250% and (iii) the marginal presence in most growing countries, Ferrari is well prepared to deliver higher than consensus organic
200% growth, both on the medium and long term. We model this in our DCF by considering a “terminal growth rate” of 3%, justified 150% by (i) a consistent increase in the ASP (7,2% 2019A-2023E CAGR), (ii) raising volumes (which we expect to reach the 15.000 100% units/year in 2028E, (with a 2019A-2023E CAGR of 4,5%), (iii) favorable secular trends (expanding SUVs markets in higher 50% growing countries; increasing number of HNWIs to enlarge Ferrari’s Total Addressable Market - TAM) and (iv) long term brand 0% diversification chances.
-50% lug-16 set-16 lug-17 set-17 lug-18 set-18 lug-19 set-19 gen-16 mar-16 nov-16 gen-17 mar-17 nov-17 gen-18 mar-18 nov-18 gen-19 mar-19 nov-19 gen-20 mag-16 mag-17 mag-18 mag-19 RACE 100 SXAP 100 S&P Global Lux NTR 100 FTSE World Europe 100 Sources: Bloomberg A luxury rarity in the automotive sector Ferrari’s share prices have outperformed the Auto sector over the last 3Ys, as the Company’s shares value more than tripled Main Metrics (€ mn) 2019A 2020E 2021E since its IPO. The current trading multiples are making Ferrari as expensive (more expensive, in many cases) as some Ultra Revenues 3.766 4.214 4.742 Luxury companies such as Hermès, LVMH or Kering (with a 2020E EV/EBITDA of 21,7x and a 2020E P/E of 43,1x). Even though EBITDA 1.269 1.438 1.755 (i) Ferrari operates in the automotive industry (which is known for being a cyclical one, very exposed to macroeconomics factors EBITDA margin 33,7% 34,1% 36,9% and with tight margins), and (ii) its CapEx/Revenues ratio is in line with the sector average, we consider it as a uniqueness in FCFF 617 390 662 the market, given its many peculiarities. We believe that (i) its controlled growth strategy (based on a waiting list approach, similar to Hermès and Patek Philippe), (ii) its profitability ratios (2019A EBITDA margin of 33,7% vs an auto mass market Multiples 2020E 2021E 2022E average of 5%), (iii) the composition of its clientele (made up by wealthy and loyal customers, less exposed to economic P/E 43,1x 41,8x 32,9x downturns) and (iv) the organic growth potential, justify its similarity with the Ultra Luxury Companies, in valuation terms. EV/Sales 7,3x 6,6x 6x A premium recognized, in our view, by what the “universe Ferrari” means, not only by the expensiveness of its cars (and Aston EV/EBITDA 21,7x 17,7x 16x Martin share performance seems to confirm this perspective…). EV/EBIT 30,6x 24,3x 21,7x Solid Balance Sheet & Cash Generation foster growth and allow long-term plans Key ratios 2019A 2020E 2021E Strong Cash Flow generation will support increasing post-industrial plan R&D and CapEx. The luxury high ROE 49,2% 46,4% 51,73% performance auto sector is becoming increasingly competitive, as many companies are targeting this segment by also raising ROIC 21,5% 20,5% 24,4% volumes. In our view Ferrari will need to keep on investing more than its peers to maintain its “Best-in-Class” status, crucial CapEx/Sales 18,7% 18% 15,8% for its pricing power and brand identity. Thus, we target a 2023E-2030E CapEx CAGR of 7,5%, along with a yearly average of EUR 1,6 bln R&D expenses for the same period. We believe Ferrari’s unlevered capital structure will allow strong shareholders Performance 1M 3M 12M return, with a projected dividend payout ratio of 70% starting 2023E. Strong Free Cash flow generation will also be Absolute 2,9% 5,8% 44,7% supportive for Ferrari long-term opportunities. Rel. to FTSE MIB 5,1% 6% 28,3% Rel. to S&P500 3,1% 8,8% 24,2% Main Risks: the electric “mania” and brand dilution Electrification - In our opinion, sport electric cars will not harm Ferrari’s business, as Digital watches haven’t destroyed Swiss Consensus 2020E 2021E 2022E watch makers, like Rolex or Patek Philippe. Actually, we haven’t seen (and likely will never see), a “Digital Rolex”. However, Net Revenues 4.214 4.742 5.150 we cannot exclude that customer preferences will change in the future, forcing Ferrari to develop a full electric car. Even though Delta vs Consensus +81 +240 +296 the Company already has an internal developed know-how, going full electric would imply (i) higher CapEx (to maintain its EBITDA 1.438 1.755 1.937 typical best-in-class quality standards) and (ii) to lose one of the main distinctive features of its Ferraris: a roaring engine. Delta vs Consensus -8 +104 +82 Overly rapid expansion - On the other hand diluting the brand with (i) an excessive volume expansion or (ii) poorly EPS 3,82 4,86 5,42 perceived new models can hamper Ferrari’s current premium positioning, impacting both numbers and valuation. Delta vs Consensus -0,26 +0,19 +0,25
Los Pollos Hermanos | 1 FERRARI N.V.
Investment Thesis Beat&Raise to continue: Revenues - Exhibit 02 Starting from the essentials: what we believe the market is already pricing… 4500 +2,8% 4000 +7,6% 1. Do not bite off more than you can chew: BEAT & RAISE to continue +3,5% +0,6% 3500 +7% At the base of the Company’s success lies a cautious and conservative management, able to set realistic growth targets (both 3000 2500 in the short and the medium term). The goal is delivering sustainable growth by not diluting the brand, maintaining best-in- 2000 1500 class quality standards and fueling the marque exclusivity. Thanks to this approach, Ferrari has a tradition of under promising 1000 and overdelivering: since its IPO in 2015 the shipments and the reported EBITDA have been, on average, respectively 1% and 500 0 8% ahead of company projections. This is a trend that we expect to continue next years, with our expected 2020E EBITDA 2,3% 2016 2017 2018 2019 2020 ahead of the company’s mid-plan targets, and our 2020E Net Revenues 2,8% ahead of its targets (+2% vs consensus). GUIDANCES OVERPERFORMANCE 2. Pay for exclusivity: another test passed Sources: Company Data, Consensus The success raised by the SF90 and the two new Icona models (Monza SP1 & SP2) showed once more (as if it were needed)
that Ferrari has grasslands in front of it to gradually increase the ASP of its vehicles. The SP1 & SP2, whose scheduled production had been set at 499 models, had starting prices of €1.6 mln (>80 % higher than the 812 Superfast) and they’ve Ferrari’s current price range - Exhibit 03 gone sold out at the unveiling date. Therefore, pushing the ASP means increasing profitability and margins without affecting 1.600 the waiting list or the exclusivity, as volumes can grow at a slower pace. We believe this strategy will firstly be transferred to the top selling 812 Superfast and the new F8 Tributo, just before expanding to the whole offer range. We expect the ASP to 1.200 double in 2030E, and to grow at a 2019A-2023E CAGR of 7,2%. 3. A rare horse: Ferrari’s defensive qualities 800 1.600 Ferrari doesn’t seem to be affected by those macroeconomics factors typically influencing the automotive sector: after the
400 2008 crisis, i.e., Ferrari’s Revenues felt down by just 7% before bouncing back to the pre-crisis level in 2009, compared to a 470 325 13% plunge of sector. This is in part due by the fact that Ferrari’s production is not driven by the market demand, and in part 198 225 262 0 PORTOFINO ROMA F8 SPIDER PUROSANGUE SF90 MONZA by the fact that its clientele is made up by very wealthy people (less affected by economic downturns). Whilst mass market
Sources: Team Estimates, Quattroruote - EUR ths producers compete in a race to the bottom, Ferrari has thousands of “aspiring clients” all around the world… ...and what we believe it is not: our R.U.S.H. investment thesis Ferrari’s “controlled growth” strategy is a philosophy the Company follows to preserve the brand exclusivity by containing the number of cars sold each year (and a real exclusivity is - and will continue to be - crucial for justifying the current and future Keeping the “luxury” Revenue pace - Exhibit 04 selling prices). However, many macroeconomics evidences, along with the latest Company’s moves, convinced us that 150 140 (i) there’s a lot of room for expansion, (ii) Ferrari is preparing the “assault” and (iii) “exclusivity” it is not a real matter… 130 Room for geographical expansion 120 110 First of all, Ferrari’s operations are currently concentrated mostly in Europe and the Americas (USA and Canada), 100 two markets that accounted for more than 2/3 of 2019 shipments and almost 80% of 2019 Net Revenues. Therefore, it is clear 90 80 that the Company has still a marginal presence in regions such as China, APAC and Middle East. However, exactly these 70 regions (i) registered the highest GDP growth over the last five years and (ii) present the highest GDP growth expectations for 60 2006 2007 2008 2009 2010 the years ahead. As we forecast (i) a 2019A-2023E Revenue CAGR of 10,4% and (ii) a 2023E-2030E CAGR of 6,9%, we feel LUXURY AUTOMOTIVE FERRARI comfortable also with our 3% terminal growth rate. Moreover, these regions are also characterized by (i) the highest projected Source: Company Data, Factset - 2016 = 100 number of new HNWIs and (ii) higher net wealth growth expectations. Even though being rich doesn’t necessarily mean
wanting a Ferrari, this trend will enlarge Ferrari’s Total Addressable Market. Whether in North America Ferrari sold a car every
164 thousand people every year, in China does it “just” every 2 mln people: yes, we think there’s room for expansion. GDP growth expectations - Exhibit 05 Upsizing the lineup 30,0% Ferrari relies on a very loyal customer base and historically preferred long-term relationships with existing clients. Therefore, 25,0% in our view, the Ferrari Roma opens a new era: not only it will help the Company to enlarge its overall clientele, but it also 5,9% 20,0% sustains our vision of a future expansion in more fruitful countries (where exclusivity it is still far from being questioned). With 6,8% 15,0% 5,1% 8,0% the lowest selling price of the whole product offer, the Roma represents the perfect car for attracting new customers in the
10,0% 7,0% 5,8% perspective of a future cross-selling with higher-end models. On top of admittedly targeting new customers, the incoming 1,8% 5,0% 1,5% 10,4% Purosangue confirms our view that Ferrari is willing to pursue this volume increase, entering what it seems to be a very 6,1% 6,5% 3,5% 0,0% appealing segment (Lamborghini, Bentley and Rolls Royce raised great success with their first SUVs). Therefore, we expect South America APAC South Asia China
2000-2009 2009-2018 2018-2024E shipments to exceed the 13.000 units in 2024E (with a 5Y CAGR of 4,5%), before reaching the 15.000 units/year in 2028E.
Source: Company Data, Factset Sailing the green wave: the hybrid revolution The success raised by LaFerrari Aperta and the SF90, the first two hybrid vehicles ever produced by the Italian carmaker, confirms our belief that Ferrari is more than equipped to face the shift from combustion to hybrid engines. We consider the product/mix hybridization as a huge opportunity for the Prancing Horse. On one hand, it will help to improve the cars’ Ferrari’s Lineup Extension - Exhibit 06 performances by (i) containing emissions (and this could help in matching the emission requirements) and (ii) preserving the 16 14 two main distinctive characteristics: sound and acceleration. On the other hand, it will allow the Company to price for 4 12 4 3 performance, confirming our expectations of a strong ASP increase in the long run. Moreover, in our view Ferrari won’t be 10 4 4 4 threaten by any (declared) electric revolution at least for the next 15 years. Technological lags, lack of infrastructures and 8 5 1 4 1 3 6 3 3 uncertainty around the total lifetime carbon footprint of exhausted batteries are just few of the problems still affecting the 4 3 7 . 5 6 6 mass market industry, giving Ferrari many years to prepare for this potential revolution 2 4 3 4 0 Heritage to be preserved 2017 2018 2019 2020 2021 2022 2023 Even though we are not expecting Ferrari to make significant announcements regarding brand related activities on the short SPORT GT SPECIAL SERIES term, (as the Company is now fully committed in implementing its core business), we believe that the brand is the Company’s Source: Company Data, Team Estimates ace in the hole, that could represent an important asset to be exploited in the future. However, the Prancing Horse marque is
a rare diamond that must be protect, and therefore the Company must be very careful in deciding the right “moves”…
Los Pollos Hermanos | 2 s FERRARI N.V.
Business Description
Founded in 1939 by a former Alfa Romeo driver, Enzo Ferrari, the company produced its first racing car in 1947, starting a tradition of successful Italian craftmanship and quickly becoming the most iconic and recognizable luxury car maker in the world (Brand Finance). Known for the unquestionable beauty of its cars and for the power of its engines, Ferrari owns its reputation largely to the participation, since 1950, in the Formula 1 World Championship, making Scuderia Ferrari the longest running and most successful team in the competition. Under the FIAT direction since 1969, Ferrari (i) pursued a policy of limited production which fueled the brand “exclusivity aura”, (ii) built up its celebrity by winning 15 Formula 1 World Championship Titles and (iii) produced many of the most valuable cars of the world. After successfully separating by the FCA Group in January 2016, Ferrari N.V. is currently an independent Dutch company listed both on the NYSE and on the Italian The Founder, Enzo Ferrari Stock Exchange (since January 2016) under the ticker RACE. COMPANY PROFILE With a market cap of EUR 29.692 mln, 2019 Net Revenues of EUR 3.76 mln and a 5Y Revenues CAGR of 5,7%, Ferrari 2019 Revenue Breakdown by segment - Exhibit 07 employees 4.130 people on its facilities in Maranello and Monza, delivering more than 10 thousand cars worldwide through a network of +170 carefully selected dealers. The participation in the F1 Championship has always given the Company a 5% technological advantage and the unparalleled chance to transfer the acquired know-how into the production of its road cars. 14% This helped Ferrari to price for performance when presenting its vehicles (ASP 10Y CAGR of 2,6%, above the 10Y cost of living well inflation of 2,3%). Every Ferrari incorporates the pillars of the brand: Italian design, state-of-the-art technology, innovation and real exclusivity. The Company’s current product range is divided into four main segments, combining in different ways a
78% predilection for performance or comfort: the Sport Range, the GT range, the Special Series and the Iconas (introduced in 2018 to celebrate the 70th anniversary of the Company). Ferrari counts on an incredibly loyal customer base (65% of 2018 cars sold
CARS BRAND ENIGNES OTHER to existing clients), but this also means that it has to ensure very high-quality standards when presenting new models. In order to astonish this very “demanding” clientele, the Company follows a tight rule when projecting a car: driving a Ferrari must Source: Company Data mean Driving Emotions, a concept identified in a perfect mix of sound and acceleration. We add beauty and design: not by
chance Ferrari relies on a dedicated Design Building in Maranello.
Revenues Breakdown - Cars, Brand & Engines Revenues & EBITDA Margin - Exhibit 08 5.700 45% Ferrari’s core business consists in the design, manufacture and sale of luxury performance cars. However, the Company’s top 37% 38% 34% 4.750 33% 34% 37% line includes revenues coming from three strategic business segment: Cars & Spare parts (77,7% of total 2019A net revenues, 30%
3.800 28% with a 5Y CAGR of 7,1%), Sponsorship, commercial & brand activities (14,3% of total 2019A net revenues, with a 5Y CAGR of
2.850 20% 4%) and Engines (5,3% of total 2019A net revenues). Cars & Spare parts include the revenues generated by the sale of every 5.150 4.742 4.214 11% Ferrari’s car, as well as those coming from the personalization program and the sale of spare parts to clients. SC&B mainly 1.900 3.417 3.420 3.766
950 3% include (i) net revenues earned by Scuderia Ferrari (the Company’s F1 racing team) through sponsorships agreements, (ii)
0 -6 % Ferrari’s share of the commercial revenues of the F1 World Championship and (iii) net revenues earned through the brand, 2017 2018 2019 2020E 2021E 2022E which include merchandising, licensed theme parks and royalties. The third main revenue segment consists (i) in the sale of NET REVENUES EBITDA MARGIN Source: Company Data; Team Estimates Engines (V8 and V6) to Maserati (started in 2003, the partnership will come to an end in 2022, as per decision of Ferrari to focus its resources for internal R&D investments), and (ii) in the rental of engines to other Formula 1 racing teams. Ferrari: ultimate Made in Italy Heritage The fact that Ferrari has been on the cutting edge since its foundation not only proofs that the Prancing Horse has consistently 2019 Shipments Breakdown by region % - Exhibit 09 renewed its ability in interpreting and forecasting customers’ tastes, but that it is also perfectly aware of what Ferrari means for its clients and for the hearts of millions of passionate around the world. To succeed in such a challenging rush, and to keep 8% on driving the future of luxury performance cars, it becomes crucial not to leave anything by chance. This is the reason why a 29% Ferrari starts being “a Ferrari” from procurement to delivery and after sale customers service. Most of the production processes take place in the Maranello facilities, including aluminum alloy casting, engine construction, mechanical machining, painting 48% and car assembly. The company prefers retaining an in-house production when it has an interest in developing specific 15% technological know-how that could results in strategic advantages (differently from, i.e., Aston Martin, whose engines are produced by Daimler). However, for high technical components (such as brakes or transmissions) it relies on tight synergies AMERICA APAC EMEA CHINA built up with carefully selected suppliers (14 key strategic innovation partners, and more than 750 total suppliers), towards Source: Company Data whom Ferrari preserves a crucial bargaining power (no suppliers accounts for more than 10% of the total procurement costs). Design for performance As aerodynamics and beauty are two key features of Ferrari’s vehicles, in 2010 the Company realized the Ferrari Design Center (an in-house building totally renewed in 2018, covering 5.600 sqm in Maranello), fueling a tradition of research & innovation A history of success: Scuderia Ferrari - Exhibit 10 that earned the company many rewards over the years: even a non-car lover recognizes that a Ferrari is an artwork. The Design Center handles all aspect of automotive styling of the road cars segment, from bodywork, external components and internal trim. It is focused on define and evolve the stylistic direction of the brand, imprinting all new products with a futuristic and innovative vision, and this is why Ferrari is also known for producing absolute engineering masterpieces. Industry Overview and Competitive Positioning When thinking about a cars producer there shouldn’t be the issue of specifying the relative industrial sector: the answer should be, without any doubt, the “automotive” one. However, when thinking about Ferrari, the answer is everything but given... INDUSTRY OVERVIEW Halfway between two worlds: Luxury or Automotive? Ferrari has won 234 Grand Prix & 16 World Constructors Titles Ferrari manufactures and sells cars and this (even though their ASPs collocate it in the high-end segment of the industry), would suggest Ferrari should be exposed to similar factors as traditional automakers. However, after deeply digging into the
Los Pollos Hermanos | 3 FERRARI N.V.
business, we believe that (i) Ferrari’s profitability and fundamentals, (ii) its defensive qualities vs macroeconomics indicators, (iii) the nature of its business and clientele and (iv) its long run growth perspectives, make it an ultimate high luxury company, 3Y Share Price Performance - Auto - Exhibit 11 rather than an automaker. 270% 1. Letting the numbers speak: “luxury” margins 220% By comparing the Company’s margins with the automotive industry (see Appendix A-7) it stands out that the Company 170%
120% produces higher returns in terms of profitability (2019 Gross and Net margins of 53% and 19% vs auto median of 18% and
70% 5%), whilst presenting the highest CapEx/Sales ratio (2019 CapEx/Sales of 18,8% vs auto average of 9%). Whether higher 20% margins can be seen as a natural consequence of Ferrari’s higher selling prices, it must be considered that Ferrari keeps best- -3 0% in-class margins also when compared to other high-end companies: 2019 EBIT margin of 24,3% vs a median of 3%. Ferrari’s -8 0%
VW GM profitability ratios are, instead, in line with those of high luxury companies. FCA PSA AML CNHi Tesla Volvo BMW RACE Toyota Piaggio Daimler Ren ault Porsche Gross Margin % EBIT margin % Cash Conv. Rate ROIC CapEX/Revenues Source: Factset Data Company 2017A 2018A 2017A 2018A 2017A 2018A 2017A 2018A 2017A 2018A RACE 52% 53% 23% 24% 89% 38% 23% 27% 11% 19% Automotive Average * 19% 18% 7% 6% 52% 28% 8% 8% 8% 8% 3Y Share Price Performance - Luxury - Exhibit 12 High Luxury Average ** 59% 61% 18% 20% 120% 102% 14% 15% 7% 9% 350% 2. Price performances reflect strong financials and defensive qualities 300%
250% Over the last three years, Ferrari has outperformed the automotive sector, presenting an absolute return in line with other 200% high luxury companies. We consider this as a consequence of (i) its strong financials and cash generation and (ii) its defensive 150% qualities. Ferrari has a genuine waiting list with incredibly strong order books (defined as “phenomenal” by the CEO), 100%
50% and this is a typical approach of very high luxury companies (such as Hermès and Patek Philippe). This is, however, also a 0% phenomenon which is not present in any other automaker, but that provides some protection in the case of an economic -5 0% BC
KER slowdown. Considering the 2006-2009 time window (including the 2008 financial crisis), Ferrari’s Revenues grew at a 7,7% RACE LVMH Prada SFER HRMS Tiffany RICHE Moncler Burberry YoY average whereas the car industry registered, in the same period, a -9,2% YoY average plunge. This has been possible since Source: Factset Data (i) the drop was mainly due by orders postpositions (rather than cancellations) and (ii) the lower price of the “Ferrari California” sustained the order book. Considering the current presence in the offer range of both Ferrari Roma and Portofino, we believe Luxury margins 2018 - Exhibit 13 the Company could replicate in future the “California effect” in the case of an economic downturn. Finally, another defensive quality shared with the “Luxury universe” is represented, in our view, by the Company’s wealthy clientele, less exposed to CCR macroeconomic trends.
ROIC 3. Statistical evidences sustaining our point Ferrari’s low correlation with most relevant macroeconomics indicators confirms its distance from the auto industry. We NET MARGIN analyzed the Company’s exposure to (i) the Euro area inflation expectations, (ii) the 10Y Government Bond yield and (iii) the
EBIT MARGIN prices of the main commodities affecting the car sector (Brent oil, aluminum, steel). Although Ferrari shows a low correlation with commodities prices (in line with the auto sector), the results of our analysis confirm that (i) Ferrari is less exposed than to 0% 20% 40% 60% 80% 100% 120% FERRARI AVG. LUXURY AVG. AUTO inflation fluctuations and (ii) it is only marginally affected by the long term Government Bond yield, differently from the
Source: Company Data, Factset automotive industry which presents a 28,8% correlation. To bring another proof of Ferrari’s peculiarities and its “defensive qualities”, we also analyzed its shipments volatility from 1999 to 2018 and compared it with the overall car industry. The results showed that the Company’s YoY shipments change is less volatile and, therefore, more stable (Ferrari’s st.dev. of 5,7%
vs Auto sector st.dev. of 6,2%). On top of this, we signal that Ferrari presents a 53% correlation with the S&P Global Luxury Ind. The California Effect - Exhibit 14 8000 High luxury cars in a nutshell: description and KEY TRENDS
7000 Differently from the cyclical automotive market (shaped by macroeconomics variables such as (i) GDP growth, (ii) inflation 6000 2200 expectations, (iii) unemployment rate and (iv) oil price) that continue to show decreasing margins and a limited upward 2000 2500 5000 potential in the mid-short term, the luxury cars segment (even in a context of international tensions), was the fastest 4000 expanding one in the worldwide luxury market, growing 7% YoY in 2019 (vs 4% of the EUR 1.268 bln luxury goods 6488 6548 3000 5840 5399 4995 mkt). According to Bain&Co, the luxury cars segment estimated value was EUR 550 bln in 2019. 2000 4253 4071 1. SUVs: an (increasingly) growing market 1000
0 The SUVs market (considering also crossovers) registered an incredible worldwide growth over the last five years. In 2018 in 2005 2006 2007 2008 2009 2010 2011 North America SUVs reached a market share of 70%, with also Europe registering high growth rates, with an estimated 2020 Ferrari's Shipments California market share of 45% (according to Bloomberg). Consumer preferences for these vehicles are driven by (i) perceived safety, (ii) Source: Company Data, Team Estimates higher driving position, (iii) more comfortable interiors and (iv) superior versatility. On the other hand, automakers favor SUVs
since they bring in higher selling margins. Not by chance, as the SUVs growth perspectives are even higher in emerging countries (where the average car/per capita ratio is still low compared to the developed markets), the automakers are matching SUVs Impact on Lamborghini shipments - Exhibit 15 this trend with their latest model launches. Audi, i.e., recently introduced a consistent amount of new models, as well as BMW 9.000 did with the new X5. Even though the benefits from this evolution are expected to have a greater impact on the mass market producers, it is worth notice that luxury cars manufacturers (LCMs) can benefit from this opportunity. Starting from Bentley, 6.750 4.962 which already launched the Bentayga in 2015, the suggestion of entering this fertile market has rapidly spread to other 1.761 4.500 companies such as, in order, Lamborghini, Rolls Royce and Aston Martin. The latest to join the party will be Ferrari in 2022 with its Purosangue. All these companies registered a consistent increase in volumes after the SUV launch, with Lamborghini 2.250 3.935 4.006 3.707 3.759 3.243 doubling its shipments in the last two years (+109%, 2019 vs 2017). 2.122 2.650 0 2. HNWIs growth: cautious expectations 2013 2014 2015 2016 2017 2018 2019 It is commonly claimed by Luxury Cars Manufacturers (identified as the manufacturers of cars sold for an ASP ≥150k USD) LAMBORHINI URUS Source: Company Data that (i) the worldwide past and future growth in the number of HNWIs (people with at least USD 1mn in investible assets) and (ii) their total wealth are two of the main industry factors driving their future growth in terms of (i) shipments and (ii) revenues in the mid-short run. We recognize that a (i) 6,1% number of HNWI’s CAGR 19-23E and (ii) 5,7% HNWI’s wealth CAGR 19-24E are factors Notes: Los Pollos Hermanos | 4
includes FCA, VW, Daimler, Toyota, Ford, PSA, Renault, GM, BMW. **includes Hermès, Cucinelli, LVMH, Kering, Richemont, Prada FERRARI N.V.
that can positively affect the luxury car manufacturers in the years ahead by expanding their TAM. This is especially true for HNWI’s total Wealth Growth Exp. - Exhibit 16 130 Ferrari: by applying higher ASPs respect to its competitors, its 65% of clients owning more than one model are surely HNWIs. 120 3 110 3 7 However, we are aware that this argument has some limitations, since (i) the expected wealth growth in the past didn’t 3 7 4 100 3 7 3 3 7 3 24 90 6 3 necessarily turn into higher shipments or Net Revenues for Luxury Cars Manufacturers, (ii) it is questionable that the mere fact 3 23 80 22 21 70 20 of having USD1mln in investible assets implies the purchase of a high luxury car and (iii) given the ASPs, being an ultra-rich 60 50 is neither a necessary condition.
40 75 80 66 71 3. Lightning Speed: the electric “mania” hits the supercars market 30 62 20 Aston Martin (with the Rapide E), Porsche (with the Taycan), Tesla (with its Roadster 2020) and Pininfarina (with the Battista) 10 0 2019A 2020E 2021E 2022E 2023E are just few of the names that recently entering what many expect to become a blooming market: the full electric supercars N. AMERICA EUROPE S. AMERICA APAC ME+AFRICA one. As consumers are changing their spending habits in the name of a more sustainable world, so are doing many Source: Credit Suisse Global Wealth 2019 manufacturers, trying to match the trend with these new launches. The challenge to win? To proof that speed and excitement don’t necessarily require roaring combustion engines (and Tesla’s Roadster 2020 0-60 mph in 1.9s seems to be on right path
to succeed). However, one must divide real revolutions from just “announced” ones… HNWIs growth vs Revenues growth - Exhibit 17 9,0 16% COMPETITIVE POSITIONING 8,0 14% Porter 5 forces Analysis 7,0 12% 10% 6,0 8% The Luxury Car Market to which the Company belongs is mainly driven by (i) Internal Rivalry and (ii) the Threat of Substitutes 5,0 6% 4,0 8,0 8,0 whereas the Buyers & Suppliers power and the Threat of new entrants play a relatively minor role. 4% 6,4
EUR Billions 3,0 6,1 6,0 2% 4,5 1. Internal Rivalry - The competition in the high luxury segment is concentrated in a small number of OEMs, which includes 2,0 0% 1,0 -2% large volume automotive companies with brands under their ownership (Volkswagen‘s Lamborghini and Bentley, FCA’s 0,0 -4% 2013 2014 2015 2016 2017 2018 Maserati, BMW’s Rolls-Royce) as well as luxury manufacturers exclusively focused on luxury cars (Ferrari, AML, McLaren). Net Revenues (Cars) Nr. HNWIs YoY Growth HNWIs Wealth YoY Growth Lineare (Net Revenues (Cars)) According to App. C-1 the Company is deemed to be well positioned in the 4 traditional segments: Sport, GT, Special Series Lineare (HNWIs Wealth YoY Growth) and Hypercars . The estimated 17% Ferrari’s global market share and the successful history of its models strengthen our beliefs. Source: Company Data 2. Threat of Substitutes - In broad context of expansion of the product range and volumes, Ferrari’s relative quality in terms
of performances, level of innovation and design represent the core of its brand differentiation. However, the surging trend in Electric Fireballs: max speed of e-supercars - Exhibit 18 SUVs portfolio concentration of LCMs and the much more restricted in BEVs constitute modest threats for the Company in the 450 short term and in the mid-long respectively, as presented in Appendix C-1 400 3&4. Buyer & Supplier Power - Due to the ability to construct and maintain an exclusive club of loyal customers, similarly 350 300 to other LCMs, Ferrari is not exposed to buyer power to the same extent it isn’t exposed to its suppliers. The way Ferrari shapes 250 and continually manage the contractual relationships with its suppliers added to its autonomy given the choice of to make 200 400 402 412 340 against to buy, makes it resilient to any pressure in its supply chain. 150 249 260 100 5. Threat of New Entrants - It’s mainly driven by very small volume producers in the BEVs sector. However, the probability 50 that their expansion could affect significantly the appeal and the heritage of Ferrari is very limited - see Appendix C-1 0 AML RAPIDE E PORSCHE FERRARI SF90 PININFARINA TESLA RIM AC C_TWO COMPANY STRATEGY & KEY DIRECTIONS TAYCAN BATTISTA ROADSTER 1. Controlled growth to pursue VALUE UPON VOLUME Source: Company Data Even though Ferrari removed the historical cap on volumes (which, in 2014, was set at around 7.000 cars/year), the Company
is still pursuing a controlled growth strategy. From the management’s perspective, this is crucial to (i) preserve the brand
exclusivity, (ii) ensure best-in-class quality standards (performance and technology), (iii) not to stretch the waiting list (even if Porter’s 5 Forces Analysis - Exhibit 19 Internal Rivalry it might be true that “asking the clients to wait years for driving their Ferrari, will just make them enjoying it more”) and (iv) to 5 preserve the models residual value (a Ferrari’s peculiarity very appreciated by its customers). Ferrari consistently declares that 4 3 it will always prefer value upon volume not to lose even a tiny portion of exclusivity. However, in 2019 Ferrari shipped 10.131 Threat of 2 Buyer Power cars (+9,5% vs previous year), launched 5 new models (F8 Tributo, 812 GTS, SF90, 488 Pista Spider, Roma), and it is targeting Substitutes 1 0 an expansion into new segment, including (i) cross-overs (the Purosangue shipments will begin in 2023E) and (ii) Icona (Monza SP1 & SP2). On top, the Company announced that 60% of its lineup will incorporate hybrid technologies by 2022. 2. Building a passionate community Threat of New Suppliers Power Entrants In order to fuel the brand appeal, Ferrari has historically been committed in creating a community of passionate fans all around the world: “there can’t be exclusivity without inclusivity”. By becoming the longest running and most successful team in the Sources: Company Estimates history of the F1 World Championship, Ferrari made millions of fans dreaming about the Prancing Horse through the decades. Every fan feels to be part of the Red Tide and every child dreams to drive, one day, one of those fireballs. In this sense, Ferrari is the most inclusive car makers in the world. Unfortunately, not everyone can own a car, and this has always been a
matter of exclusivity, more than affordability: “Ferrari will always deliver one car less than the market demands” (Enzo Ferrari). 2018 Market Share - Exhibit 20 Since Ferrari’s clients are considered as brand ambassadors, they have always been carefully selected by the Company, with a
17% predilection for existing and prestigious clients. 25% 3. Pursuing organic growth: MAKE, not Buy
14% Even though Ferrari relies on a very articulated network of suppliers, the Company’s strategy has always been that of pursuing 4% ORGANIC growth, avoiding M&As operations. This approach is justified by (i) the absence of relevant companies as profitable 6% 9% 8% as Ferrari and (ii) a strong cash production giving the Company the necessary resources to develop internal know-how through 9% 8% cash R&D expenses.
FERRARI MASERATI LAMBORGHINI BENTLEY MCLAREN ASTON MARTIN Financial Analysis MERCEDES ROLL'S-ROYCE OTHER Ferrari is the highest expression of the pure Italian craftmanship, able to engineer and manufacture many of the most iconic Sources: Company Data, Factset - 2018 cars ever produced. From its victory legacy in the F1 World Championship, the myth has rapidly spread to the road cars production, becoming the dream of any - millionaire - passionate. However, (i) volume scarcity, (ii) best-in-class performances, (iii) sex appealing design and (iv) outrageous engine rumble were the key elements that helped Ferrari to build up its brand aura, and to properly price its fireballs Los Pollos Hermanos | 5 FERRARI N.V.
aura, and to properly price its fireballs. This magic mixture has historically allowed best-in-class financial performance, purely obtained by a - quite consistent - organic growth. Revenues YoY growth by segment - Exhibit 21 HISTORICAL ORGANIC GROWTH 4.000 Revenues 538 3.000 494 506 Back in 1999, Ferrari was producing just 3.775 cars, a number which doubled by 2015 (with 7.664 shipments), and which we 488 441 expect to double again by 2029E. Considering a 20Y time span, Ferrari’s volumes grew at a 10Y average CAGR of 4,4%. This, 2.000 along the consistent increase in the ASP (2000-2009 CAGR of 6% | 2010-2019 CAGR of 2,9%) of its cars, allowed the Company 2.926 2.456 2.535 1.000 2.080 2.180 to present a double-digit 2000-2009 Revenues CAGR of 10,5%, and a 2010-2019 CAGR of 7% (above the auto sector average of 5%). In 2019 the Company registered record Revenues of EUR 3.766 mln (+10,1% vs 2018, tripling its results in 14 years) 0 2015 2016 2017 2018 2019 sustained by higher revenues from (i) Cars (+15,4% vs 2018), and (ii) Brand (+6,3% vs 2018, mainly due to higher revenues CARS ENGINES BRAND OTHER from F1), partially offset by a -30% decrease in the Engines segment (as per the slowdown in the partnership with Maserati). Source: Company Data The Cars & Spare parts segment is the fastest growing one for Ferrari, with a 8,5% CAGR since the removal of the self-imposed cap on volumes, reflecting the current Company’s focus in the expansion of this business line. It is worth notice how the ASP, a key growth driver, has outperformed the (i) CLEWI, (ii) Italian and (iii) World CPI inflation growth rates (for the same periods). EBITDA & Net Margin 2014-2019 - Exhibit 22 Margins & Returns 1.600 34% 35% Margins - Since the removal of the volumes cap in 2014, Ferrari has further strengthened its margins (which were already 33% the best-in-class in the previous years). In 2019 the Company registered a (i) 52% Gross Margin (vs 46% in 2014), (ii) 33,7% 1.200 30% 30% EBIT margin (vs a 25% in 2014) and (iii) 18,4% Net Margin (vs 9,5% in 2014). In 2018 Ferrari benefitted of the Patent Box tax 27% 800 break accorded by the Italian Government which led to a 2% tax rate (with a total relief of around EUR 145 mln) registering a 25% 25% 1.269 1.034 1.113 25% Net Margin peak of 23%. Since the IPO, the EBIT margin improvements are mainly attributable to (i) higher yearly shipments 400 840 678 719 and (ii) a favorable price/mix, partially offset by R&D and SG&A expenses. Returns - In 2019 Ferrari registered a ROE of 49%
0 20% (vs 73% in 2018) and a 21,5% ROIC (vs a 27,5% in 2018). This decline may be deceptive, but it is justified by the fact that (i) 2014 2015 2016 2017 2018 2019 in 2018 the Company registered a 2% marginal tax rate and (ii) the strong cash generation has led to a higher BV of Equity. EBITDA NET PROFIT MARGIN Source: Company Data Notwithstanding this sharp plunge, Ferrari’s return ratios remain the best-in-class when compared to both the auto and the high luxury segment - see Appendix A-8.
Cash Flow & Financial Structure Ferrari has a track record of strong FCFF generation, fueled by increasing Operating FCF and partially offset by sustained CapEx. EBIT bridge 2016-2019 - Exhibit 23 In 2019, Ferrari has reported an EUR 1,3 bln Operating FCF (+40% vs 2018), backed by increasing PBT (EUR 875 mln, +9% 1200 62 vs 2018), and higher D&A due to higher investments. Ferrari’s FCF from Industrial Activities has grown at a record 79% in 141 8 1000 917 284 -123 2019, reaching EUR 675 mln, whilst the Company is continuing its path towards a “Free Industrial Debt position”, with Net -52 800 Debt declining 9% vs 2018 to EUR 337 mln (-33,7% vs 2017). The 2019 CapEX/Auto Sales ratio has hit a record 22,6%, well 595 600 above the pre-industrial plan ratio of 13,71% (2017), as the Company presents EUR 2,4 bln 2015-2019 cumulative CapEx. 400
200 FUTURE ANALYSIS
0 As Ferrari’s topline is composed by four different business lines we made different growth assumption for each one of them, FY16A Volume price/mix curr. Ex. Other R&D SG&A FY19A resulting in a 2019-2023E CAGR of 10,4% (vs a Factset consensus of 7%), with Net Revenues to exceed the EUR 5 bln in 2022E Source: Company Data (slightly above the Company’s guidance), just before reaching EUR 6,1 bln in 2023E as for the impact of the first deliveries of
(i) the Purosangue and (ii) the new Iconas and Special Series - see Appendix D-1. EBIT margin, Net margin & ROIC (2018) - Exhibit 24 30% Cars & Spare parts Representing 77,7% of 2019 total Net Revenues (+15,4% vs 2018), the main growth contributor for Ferrari will continue to 23% be the sale of its cars, which we expect to exceed the threshold of 13.000 units/year by 2024E, and to grow from 2024E to
15% 2030E at a flat 3,5% rate (below the Company’s 20Y historical average of 4%). Therefore, our projected 12% 2019E-2023E 27% 24% 23% 20% CAGR is the result of our assumptions on both (i) shipments and (ii) ASP growth. Shipments - As Ferrari has still 10 new 8% 13% 15% models left to be launched by 2022 (with the first Purosangue deliveries expected in 2023E), we made specific YoY growth 8% 6% 5% 0% assumptions for total shipments until 2023E by (i) estimating the current and future models life time (Sport: 5,6 years | GT: EBIT MARGIN NET MARGIN ROIC 4,6 years, Special Series & Iconas: 2,7 years), (ii) modelling the launch cadence, (iii) assuming a well-balanced segment AVG. AUTO AVG. LUXURY FERRARI Source: Company Data; Factset distribution of new models and (iii) estimating the average shipments by model (differentiating between Sports/GT and Special Series/Icona) - see Appendix D-1A. ASP - As we believe a consistent ASP increase will be crucial for Ferrari to preserve its exclusivity, we forecasted the specific ASP for every year until 2023E, based on our assumptions on (i) future volumes Shipments & ASP growth % YoY - Exhibit 25 growth and (ii) lineup composition. We used a weighted approach “by model contribution” to forecast an ASP 2019A-2023E 14.000 20% CAGR of 7,2%, before assuming a flat increase of 4,93% YoY starting 2024E - see Appendix D-1B. 12.000 15% 10.000 10% 8.000 Forecasts 2016 2017 2018 2019 2020E 2021E 2022E 2023E 5% 6.000 Car sales (units) 8.014 8.398 9.251 10.131 10.449 10.944 11.389 12.628 0% 4.000 growth % 4,79% 10,16% 9,51% 3% 5% 4% 11% 2.000 -5 % ASP (€ thousands) 258 278 260 274 303 333 349 388 0 -1 0% 2018 2019A 2020E 2021E 2022E 2023E growth % 7,5% -6,3% 5,4% 10,6% 9,7% 4,9% 11,1% CAR SALES ASP growth YoY% Revenues from Cars (€ mn) 2.071 2.333 2.408 2.780 3.170 3.642 3.975 4.896 Source: Company Data; Team Estimates growth% 12,7% 3,2% 15,4% 14% 14,9% 9,2% 23,2% Assume +5% Spare Parts 109 122 126 146 166 191 209 257
Tot Revenues from Cars (€ mn) 2.175 2.450 2.529 2.919 3.328 3.824 4.174 5.141 growth% 12,7% 3,2% 15,4% 14% 14,9% 9,2% 23,2% Source: Company Data, Team Estimates
Los Pollos Hermanos | 76 FERRARI N.V.
Commercial, Brand & Sponsorship We decided to split this revenue line into three different segments: (i) revenues from Formula One Management (TV rights and Seniority Bonus), (ii) revenues from sponsorship agreement and (iii) revenues from brand activities (include revenues from licensing, theme parks and merchandising). As the first two segment depend, in our view, by the participation in the F1
Commercial, Brand & Sponsorship growth - Exhibit 26 World Championship, we based our growth assumptions on both (i) the past average revenues/race ratio and (ii) the number 600 of races/year (which we expect to reach the target of 25 races/year in 2026E). F1 Revenues - Our F1 revenues, therefore, are
500 the result of our growth projections for the revenues/race ratio, multiplied by our projected races/year, adjusted for the World
400 CPI inflation expectations, leaving a 2019A-2023E CAGR of 3%. Brand Activities - Even though we consider the brand as a
300 (still) unexploited asset, a recent statement from the Company’s Management convinced us that it would be unfair to model 525 490 519 453 452 480 200 high growth rates for the short and mid- term: “we already did what we had to for cleaning up our image and restructuring our
100 licensing activities; our focus is now on the cars segment”. Therefore, we modelled a 2019A-2023E CAGR of 6% (above Factset 160 196 106 130 53 87 0 consensus of 4,6%), with Brand activities to represent almost 10% of Adj. EBIT by 2024E (assuming an 80% margin on 2018 2019 2020E 2021E 2022E 2023E branding). Our estimates represent the impact of (i) E-sport, (ii) driving experiences, (iii) strengthen client services (more F1 Revenues Brand Activities frequent customer-oriented activities) and (iv) higher quality merchandising standards (considering the recent partnerships Source: Company Data; Team Estimates with Giorgio Armani and Loro Piana). Revenues from Brand 2016 2017 2018 2019 2020E 2021E 2022E 2023E Revenues From F1 422,1 423,8 452,7 451,5 480,0 490,0 518,7 524,7 #F1 Races/year 21 20 21 21 22 22 23 23 Revenues/Race 20,1 21,2 21,6 21,5 21,8 22,3 22,6 22,8 growth % 5% 2% 0% 1% 2% 1% 1% CapEx & CapEx/Revenues trend - Exhibit 27 Branding 65,9 70,2 53,3 86,5 106,1 130,2 159,7 195,9 800 20% growth % 7% -24% 62% 23% 23% 23% 23% 700 18% 16% 600 Tot. Revenues from Brand 488,0 494,0 506,0 538,0 586,1 620,2 678,4 720,6 14% 500 12% growth % 1% 2% 6% 9% 6% 9% 6% 400 10% 706 760 750 720 Sources: Company Data, Team Estimates 300 637 8% 6% Engines & Other 200 388 339 4% Representing together just 8% of 2019 total Net Revenues, we made flat assumptions for both the Engine Segment and the 100 2% 0 0% Other segment (including revenues earned through the management of the two Ferrari’s directly owned circuits - Fiorano & 2016 2017 2018 2019 2020E 2021E 2022E
CapEx CapEx/Revenues Mugello). Engines - We forecasted a 2019A-2023E CAGR of -2% (vs a Factset consensus of -0,4%), modelling the end of the relationship with Maserati, and assumed a 2024E-2030E flat 3% growth in line with historical luxury goods inflation (CLEWI). Source: Company Data; Team Estimates Other - We expect a 2019A-2023E CAGR of 4% (in line with the historical average growth, vs a Factset consensus of 0%), and a 2024E-2030E flat growth of 4% (in line with the historical long-term growth of the Company). Margins We expect the margins to increase as a consequence of (i) the consistent increase in the ASP and (ii) the higher numbers of cars sold each year, which will allow the Company to reach higher economies of scale. We forecast a 2023E Gross Margin of Cash Flow Projections - Exhibit 28 2019 2020E 2021E 2022E 55% (vs 52% 2019A), boosted by the impact of the first deliveries of more expensive models launched in 2022E. We expect: (i) the EBITDA to exceed the EUR 2 bln threshold by 2023E with a 2019A-2023E CAGR of 12,2% (vs a Factset consensus of 1.200 10,7%), (ii) the EBIT margin to match the Company’s 2022E target of EUR 1,2 bln (slightly above the consensus, due to higher- 1.503 700 1.306 1.361 1.132 than-consensus 2020E-2022E CapEx, resulting in higher D&As).
200 TEAM'S ESTIMATES GUIDANCES CONSENSUS
(303) 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E (300) (593) (598) (706) (760) (750) (655) (720) Net Revenues 4.214 4.837 5.340 4.100 n.a. <5.000 4.134 4.503 4.854 (800) EBITDA 1.438 1.784 1.996 1.405 n.a. 1.900 1.446 1.651 1.855 Operating FCF Investing Act. Financing Act. EBITDA Margin 34% 37% 37% 34% n.a. 38% 35% 37% 38% Source: Company Data; Team Estimates EBIT 917 1.021 1.314 975 n.a. 1.200 1.026 1.166 1.281 EBIT Margin 22% 21% 25% 24% n.a. 25% 24,8% 25,9% 26,4% CapEx 760 750 720 753 753 753 700 648 583 Sources: Team Estimates, Company’s Data, Factset Estimates CapEx Assumptions The Company has forecasted cumulative 2018-2022E CapEx of EUR 3,6 bln. Considering the effective 2018-2019 CapEx, we Taxes & Marginal Tax Rate - Exhibit 29 split the remaining balance in the last three years of the plan. Starting 2023E we then modelled the Company’s CapEx 400 35% according to the average pre-industrial plan CapEx/Auto Sales ratio (14,2%), producing a 2023E-2030E CapEx CAGR of 7,5%. 350 30% Cash Flow Projections 300 25% 250 We forecast industrial activities to generate 2020E-2023E cumulative cashflows of EUR 2,9 bln (vs EUR 1,7 bln 2016-2019), 20% 200 374 with net industrial debt to reach a ground level in 2023E. As per effect of (i) the EUR 1.5 bln share repurchase program and 336 15% 150 264 10% (ii) a constant 30% Dividend Payout, we expect a 2020E-2023E cumulative cash outflow of EUR 2,1 bln. We expect the 100 209 168 176 50 5% Dividend Payout to increase to 70% starting 2025E, as soon as the Company reaches EUR 2 bln of liquidity. 16 0 0% Taxes 2016 2017 2018 2019 2020E 2021E 2022E
Tax Tax rate Ferrari has already applied for another 5Y extension of the Italian Government “Patent Box” tax relief. However, we decided to adopt a more conservative approach, by considering a 27% statutory tax rate starting 2020E, since (i) the extension of the tax Source: Company Data; Team Estimates break is not sure (although very likely) and (ii) the Government could abrogate it in the future. However, we estimated the impact of a potential extension of the Patent Box relief by calculating a perpetuity of EUR 466 mln, which would represent additional EUR 2,5 per share on our EUR 190,84 twelve-months target price.
Los Pollos Hermanos | 7 FERRARI N.V.
Company Valuation
We used a 3-stages DCF approach to arrive at our target price of EUR 190,84, representing a +20,2% upside on 14th Bridge to Equity Value - Exhibit 30 February 2020 closing price of EUR 159,75. Since Ferrari’s management (i) has a demonstrated ability in setting realistic goals 40.000 27.226 35.808 35.471 but (ii) has a track record of under promising and overdelivering, we consider it very sharp in “hiding” the real Company’s 35.000 -337 30.000 potentials (both on the short and the mid-term). Therefore, we decided to start our analysis from what we consider the three 25.000 most reliable facts: (i) 10 new models left to be launched before the end of 2022, (ii) an incoming consistent increase in the 20.000 ASP of the whole lineup and (iii) there’s “physical” room for expansion in the Maranello’s facilities. However, when thinking 15.000 about Ferrari, it is crucial to remember that the world “growth” has a multitude of implications for it and, therefore, we tread 10.000 6.104 very carefully with it. An approach that, in our view, helped us to avoid the risk of overestimating the Company’s growth 5.000 2.479 potential. 0 First Step Second Step Third Step EV Ind. Debt Equity Value 3- Stages DCF Source: Team estimates First stage: reaping the rewards - The first stage of our DCF considers a Net Revenues 2019A - 2023E CAGR of 10,4%, as the results of our yearly estimates for both (i) shipments (19A-23E CAGR of 4,5%, with a peak of 10,9% in 2023E as per effect of the first deliveries of the Purosangue SUV), (ii) the future lineup composition and (iii) ASP (2019A - 2023E CAGR of 7,2%) - Sensitivity Analysis - Exhibit 31 see Appendix D-3. Our 2023E Net Revenues of EUR 6,1 bln reflect also higher revenues from F1 (2019A-2023E CAGR of 3%). Growth Second Stage: delivering stable organic growth - Starting 2024E, we forecasted a stable shipments growth of 3,5% 2,0% 2,5% 3,0% 3,5% 4,0% 6,00% 176,1 195,5 221,4 257,5 311,8 until 2030E, a rate which lies slightly below the Company’s 20Y historical average (of 4,4%). This assumption brings the total 6,25% 164,6 181,2 203,0 232,6 275,4 volumes to exceed the 15.000 units/years by 2029E, breaking what the management has declared to be a threshold they feel 6,44% 156,7 171,6 190,8 216,6 252,9
WACC “comfortable” with. We then expect the ASP to growth at a 4,9% flat rate, in line with the past 10Y average, and above the 20Y 6,75% 145,2 157,7 173,6 194,3 222,6 historical CLEWI inflation CAGR of 3,5%. These assumptions, along with our projected 2024E-2030E 3% and 4% CAGR for 7,00% 137,0 147,9 161,7 179,3 202,8 Brand and Engines segments (see App. D-1), will allow Ferrari to deliver a total 2024E-2030E Net Revenues CAGR of 6,7%. Source: Team estimates - Implied “g” in current stock: 2,11% Third Stage: 3% terminal growth rate Around 76% of our Equity Value is represented by the Terminal Value, which we calculated by applying a terminal growth rate of 3%. Ferrari’s operations and production facilities are ran in Italy but, given (i) its business model, (ii) the geographical breakdown of its revenues and (iii) its past 10Y Revenues CAGR of 7,2% (well above the Italian and World GDP 10Y CAGR of Terminal groth rate computation - Exhibit 32 Market Exp.GDP CAGR % Ship. 0,25% and 3,7%), we decided to consider it as a “Global Company”. Therefore, we arrived at our 3% growth rate by (i) AMERICAS 2,5% 28,6% considering the IMF long-run GDP growth estimates for EMEA (2,5%), Americas (2,5%), APAC (4%), China (5,2%) and (ii) APAC 4% 14,8% weighting them for the total 2019A Ferrari’s shipments in those markets. We consider this as a conservative growth rate, since EMEA 2,5% 48,3% (i) the Company has higher expansion potentials particularly in higher growing markets (such as China and APAC), where the CHINA 5,7% 8,3% “exclusivity” of the Brand is still far from being questioned) and (ii) it doesn’t consider further growth potentials given by a Weighted Avg. 3,0% 100,0% heavier brand exploitation. The market is currently discounting a 2,11% “g”, which we consider to be too conservative. Source: International Monetary Fund Data WACC We computed a 6,44% WACC for Ferrari. Considering the Company’s global footprint, we used a weighted average (by GDP contribution) risk free rate of 1,88%. As Ferrari has an unlevered capital structure, the WACC is mainly affected by a 5,6% MRP.
12M - Share Price Scenario - Exhibit 33 WACC Ferrari Methodology 300 309 Risk Free rate 1,88% Weighted average (by GDP contribution of) of key markets 10Y Government Bonds 250 Beta 3-y unlevered 0,87 Linear regression against the MSCI World index, considering 4Y weekly data 189 200 MRP 5,6% Average of Implied Europe and USA Market Risk Premium (Damodaran) 150 Tax rate 27% We used the effective tax rate as declared by the Company (not considering the Patent Box) 135 100 Cost of debt 2,1% 50 Cost of equity 6,77% Calculated with the CAPM approach 0 WACC 6,44% gen-18mar-18mag-18 lug-18 set-18 nov-18gen-19mar-19mag-19 lug-19 set-19 nov-19gen-20mar-20mag-20 lug-20 set-20 nov-20 Sources: Bloomberg, Factset, Company Data, Team Estimates, Damodaran RELATIVE VALUATION Given Ferrari’s business model peculiarities, we didn’t identify comparable companies (from a valuation perspective) within Source: Team estimates; Bloomberg the automotive industry and neither in the luxury goods one. On one hand, the automotive companies are engaged in a race to the bottom (given their (i) lower pricing power, (ii) higher volumes, (iii) exposure to macroeconomics cycles and (iv)
increasing competition), resulting in lower margins, profitability and growth perspectives. On the other hand, we believe that Ferrari’s Luxury 2020E multiples - Exhibit 34 60,0x luxury companies cannot be taken as Ferrari’s comps given their (i) different products and (ii) lower investments needs. Finally,
50,0x even by narrowing the field to the Luxury Car Manufacturers, the only listed Company would be Aston Martin (whose business, differently from Ferrari’s one, is facing tough times). Therefore, we decided not to use a Relative approach to evaluate the 40,0x Company, but as a check tool instead. Our DCF-based EUR 190 target price produces a 2020E (i) EV/EBITDA of 24,9x, (ii) EV/EBIT 30,0x 49,9x of 35,2x and (iii) P/E ratio of 49,9x. These multiples confer Ferrari a premium well above the average luxury ones (we 20,0x 35,2x 32,6x 24,9x 24,6x considered LVMH, Richemont, Prada, Hermès, Brunello Cucinelli, Kering - see Appendix D-4). However, this high valuation 10,0x 22,2x 16,6x 18,0x 11,2x metrics are justified, in our view, by the Company’s 2020E PEG of 3,1x which is in line with the luxury average, and well above 0,0x EV/EBITDA EV/EBIT P/E the automotive one, reflecting our high growth expectations for the company).
Ferrari Luxury Avg. Auto Avg. EV/EBITDA EV/EBIT P/E PEG Source: Team estimates; Factset Company 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E Ferrari 24,9x 20,4x 18,5x 35,2x 27,9x 25,1x 49,9x 39,3x 35,2x 3,1x 2,7x 2,5x Luxury Avg. 16,6x 16,4x 14,2x 24,6x 21,9x 19,8x 32,6x 29x 26,3x 3,3x 2,9x 2,7x Auto Avg. 11,2x 9,4x 8,5x 18,0x 13,0x 12,2x 22,2x 19,6x 12,9x 1,2x 1x 0,8x Source: Factset, Team Estimates See Appendix D-4 for a detailed description of our Relative Valuation and the Peers Groups (Luxury and Automotive).
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Investment Risks
Even though we believe a blooming future is behind the corner for Ferrari, we are also aware that many challenges are Ferrari’s Investment Risks MATRIX - Exhibit 35 awaiting the Company on the years ahead: starting from the implications of its latest strategy, and moving to the many revolutions already shaping the market (such as the “electric mania”, an intensifying competition and a change in the “being- rich” status symbols). Particularly, (i) overly rapid volume expansion, (ii) overly aggressive ASP increase, (iii) poorly perceived new models and (iv) overly stretched waiting lists are just few of the many risks that could affect Ferrari’s future, potentially resulting in a loss of pricing power and a de-rating of its multiples to the automotive levels (instead of luxury ones). Brand Related Risks A Mass-Market attitude (MM) - The luxury performance car market is becoming overcrowded with many manufacturers - Ferrari included - upsizing the lineup and/or the production capacity (Lamborghini, i.e., doubled its production plants in 2018), chasing a sustained volume expansion. Since (i) exclusivity and (ii) models scarcity have historically being at the base of Ferrari’s success and pricing power, two question naturally arises: “will today’s supercars be able to maintain, or even multiply, their value like most of the past models did?”; “will anyone produce the next 1962 Ferrari GTO (sold for $48 million at Sotheby’s in 2018)?”. The risk is real, because if the answer will be a “no” (and, particularly for Ferrari, the residual value of its cars is highly valued by its clientele), the next question on the list could be: “will be the clients still willing to pay premium prices for these less exclusive vehicles?”. Given Ferrari’s current marginal presence higher growing markets, we are confident Source: Team estimates that its forecasted volume increase won’t affect the brand exclusivity over the mid-run. However, we believe that the Company must (i) pay very high attention to properly balancing the GT & Sport segments and (ii) favor the launch of “limited” editions. It’s time to win again: Formula 1 (F1) - Ferrari’s success largely depends on its glorious participation in the Formula 1 Would we ever see a Digital Rolex?- Exhibit 36 World Championship: there the myth has born, there it won legendary races and from there sprung many of its most iconic cars. Therefore, we believe that coming back to victory (that is still awaited since 2008) it is no more an objective, but a duty instead. As the “road cars” competition increases, protracted poorly F1 performances could negatively impact the Brand appeal over the next generation, resulting in lower growth opportunities. Ferrari’s iconic “red” speaks clearly: to create the fans of the future, the supporters’ blood must boil again, continuing a legacy that made the Prancing Horse a worldwide legend. Focus on quality, please (FC) - Many speculates on what could be the right new business where to export the Ferrari brand: yacht, luxury hotels or helicopters? Whilst we agree that (i) Ferrari has room for some improvements in the “client experience” dimension (on the wake of McLaren, which offers a tremendous amount of different client activities) and (ii) the brand has real unexploited potentials, we believe that chasing new profits by any means would be a real threat for the brand exclusivity (what Source: Team Photoshop Elaboration is the clue of a EUR 100 Ferrari’s t-shirt or a surfboard?). Maintaining best-in-class quality standards, keep on driving the industry innovation and asking clients to pay increasing premium prices, in our view, would already represent a very wise way to (i) “exploit” the brand and (ii) nurturing the “exclusivity” of tomorrow … Systemic Risks Risk Mitigation Strategy (overview) - Exhibit 37 The Electrification Risk (ER) - The current automobile environment is dotted with fresh competitors pushing all their
Current mitigation energies to create the new and perfect fully electric supercar, trying to penetrate a sector characterized by lower entry barriers Risk strategy (it is quite easier to compete on batteries, rather than beat Ferrari’s legendary handcrafted V12s…). Recently, Aston Martin Chasing growth through lineup has given word about new 155 units of its Rapide E, an all-electric supercar, and plans to introduce further new models in the Brand diversification early 2020s under the Lagonda brand. Even though we are confident that Ferrari won’t undertake any electric revolution for Dilution Restructuring of the licensing at least the next 15 years (since there are still many technological delays affecting the industry, particularly in developing contracts countries), we see a huge difference between “deciding to” and “being forced to” announce the first ever E-Ferrari. As the Success of Ferrari F1 Academy the Formula 1 worldwide emission requirement are becoming tighter and tighter, then, the Company could be forced to make significant Team F1 contracts in 2021 R&D and CapEx investments to comply with changing regulations, with the risk of production delays or slower growth. Unfavorable Managing of the waiting lists Change in the clients’ preferences (CP) - Customers tastes are volatile and driven by trends: an increased attention on global Expanding in emerging makerts very important social topics such as the “Greta Thunberg Effect” or the worsening of global inequalities, thus, pose some economic Developing growth plans in line questions around what will people value in the future. There was a time when being rich meant wearing expensive pelt. Then conditions with HNWIs Enhancing the customer experience the times has changed, and now seeing a Hollywood star wearing one would be a pure rarity (on top of triggering a critics- Competition Personalization Services storm). So, in the world of tomorrow, will supercars continue to be one of the “being-rich” status symbols? Or will the society Increasing R&D and CapEx appreciate more philanthropism and lower profile lifestyles (in the wake of Bill Gates, Warren Buffet or Roger Federer)? On Development of a "business top of this, as Enrico Galliera (Ferrari’s Mktg & Comm. Chief) said, next generations could be more interested in “experiences” Production continuity plan" rather than “property”. Therefore, Ferrari must keep on innovating its cars whilst enhancing the “driving experience”. Facilities Past investments to reduce the Financial Risks Concentration impact of damages in case of Economic Downturns (ED) - A severe economic downturn could represent a meaningful short-term headwind for Ferrari’s natural events results, as it did after the 2008 financial crisis where net revenues felt down by -7% in 2009, as a result of order cancellations Identifying alternative suppliers Suppliers Insurance coverage and lower custom-tailoring rates. The EBIT decline was due to a combination of lower shipments (-259 units or Succession plans for the MGMT -4% vs 2008) and adversely FX exchange rates (especially in the US, with the USD weakening against the EUR). Training and talent development Exchange Rate Fluctuations (FX) - As more than half of Ferrari’s Net revenues are produced outside the EU, a consistent Work Force Recruit, Retain, Reward plan part of its cash inflows are denominated in currencies different from those related to its production activities and purchases. Adequate compensation Therefore, the Company is exposed to (i) exchange rate fluctuations, (ii) interest rate changes and (iii) credit risks. Particularly, FX rate Hedging instruments Ferrari is (mainly) long USD, GBP and CNY. Even though the Company tries to mitigate this risk with Hedging Instruments, it Interest rate Hedging instruments is not sure that it will continue to be successful (especially in case of economic tensions).
Interest Rate Fluctuations (IR) - Since many clients adopt financing solutions for the purchase of their Ferrari, car sales Source: Team estimates, Company Data depend in part by the availability of affordable financing. To the extent of a general increase in worldwide interest rate (which have been relatively low given expansive monetary policies), market rates for new car financing are expected to rise as well.
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This could result in financial services providers to tightening their lending standards, preventing customers to buy their cars. Operational Risks Total ESG Score - Exhibit 38 Expansion Implications (EI) - Ferrari is entering what we expect to be a high growth phase by also strengthening its Rating Ageny Ferrari FCA Tesla Hermes LVMH presence in foreign markets. Such expansion will require significant investment (such as the establishment of local operating Standard Ethics E+ E+ - E E+ entities and the hiring of local employees), and will increase the Company’s international operations exposure to legal, MSCI BBB B A BBB A political, regulatory and social requirements. Thomson Reuters B- A- C B- B Yahoo Finance 26 29 31 11 11 Environmental, Social and Governance - ESG CSR Hub 62% 87% 11% 86% 92% GOVERNANCE - Exceptional Expertise and Potential Future Developments
Ferrari adopts both Dutch and NYSE corporate governance regimes with the goal of fostering trust and confidence in the Source: cited Rating Agencies honesty, integrity and transparency of how business is conducted. Ownership Breakdown The largest Ferrari’s shareholder is currently Exor through its 23,6% stake in the common shares, and the second biggest Ferrari’s Top Investors - Exhibit 39 shareholder is Mr. Piero Ferrari with its 10,1% stake. As a result of a loyalty voting mechanism, their voting power is respectively increased to 33,6% and 15,5%, reaching a total of 49,1%. Therefore, other public shareholders hold 50,9% of the rd 23,7% total voting rights. Both counterparts entered in a Shareholders’ Agreement on the 23 December 2015, with the purpose of consultation, pre-emption right in favour of Exor and right of first offer of Piero Ferrari. A more detailed description of the Exor NV P. Ferrari relations between the Companies can be found in Appendix E-1. Baillie Gifford & Co. Board’s Composition 52,5% 10,1% T. Rowe Price Associates, Inc. Ferrari’s Board of Directors is composed by twelve members (see Appendix E-2): 58% of them are independent under the The Vanguard Group, Inc.
Others 7,2% Dutch Code’s specification for a one-tier governance structure (a requirement more stringent than the NYSE definitions), and
4,6% 33% of them are women. The strategy of Ferrari (which we believe derives directly from Exor) is to have a majority of 2% independent directors and to prefer keeping separate the roles of Chairman and CEO. This creates sound debate, competition and support within the board whilst promoting the transparency of the communications. On average, Ferrari’s Directors are Source: Factset involved at the same time in the Board of other seven different companies: this allows them to bring together different and complementary skills. As a result, the Company’s Directors are currently keeping relationships with many different industries: Board Composition - Exhibit 40 telecommunications, luxury goods (clothing, accessories and perfumes), electricity, natural gas, luxury hotels, real estate, marketing, electric motors, shipbuilding, technology and chemicals. In our vision, this heterogeneous BoDs could give Ferrari Name Role #Boards the required know-how and expertise for the development of new potential business lines in the following years. J. J. P. Elkann Non-Ex Chairman 15 The Board of Directors has established an Audit Committee, the Governance and Sustainability Committee and the Compensation Committee. The fact that the latter, by defining the relative Peers Group, indicates only companies operating L. C. Camilleri CEO & Ex Dir. 2 in the luxury sector (i.e. Hermes, LVMH, Moncler, Richemont, …), gives us another proof confirming the strong Ferrari L. E. Elkann Non-Ex Dir. 10 familiarity with the luxury market, instead of the automotive one. We believe that the Company has overall room for further governance improvements, particularly in two points: the creation A. Felisa Non-Ex Dir. 14 Non Indip. Dir. Indip. Non of a Nomination Committee and the introduction of a Remuneration Policy linking the Board’s and Management’s P. Ferrari Vice Chairman 17 remuneration to specific ESG standard or sustainability targets. Related Parties D. Arnault-Gancia Non-Ex Dir. 6 Because of the articulated chain of control mentioned above, Ferrari undertakes several transactions with Related Parties: M. P. Grieco Non-Ex Dir. 2 • Transactions with FCA Group companies (Maserati, FCA US LLC, FCA bank) A. P. C. Keswick Non-Ex Dir. 1 • Transactions with Exor Group companies (Iveco, controlled by CNH Industrial) • Transactions with other related parties (COXA S.p.A., HPE S.r.l., Ferretti S.p.A., Philip Morris International) G. Capaldo Non-Ex Dir. 8 SOCIAL - Ferrari’s Human Capital: the real Company’s engine E. H. Cue Non-Ex Dir. 1 “I believe factories are made of machines, walls and people. Ferrari is made most of all by People” – Enzo Ferrari
Indipendent. Dir. E. Zambon Non-Ex Dir. 12 Ferrari is a spearhead in the Governance, and in the same way results to be meticulously concerned in the development of Senior Non-Ex human capital, in the commitment to employees’ health and safety, as well as the attachment to the community. Socially S. Duca Dir. 1 speaking, Ferrari can boost many achievements over the years: from the introduction of a career development and internal promotion Policy (2017), to the obtainment of the OHSAS 18001 certification (2017), or increasingly high growth rates in the Source: Factset creation of net employment (13,93% in 2018). Under the microscope, the latter has witnessed a constant increase in women’s presence in the workforce (13% in 2018, 11,5% in 2016) and in managerial positions (11% in 2018, 8,7% in 2016) as well as Female Workforce 2016 - 2018 - Exhibit 41 an increase of 70% in the training hours between 2016 and 2018. However, we believe Ferrari is still deficient on some points: 4.500 14% i.e., the Company doesn’t give much disclosure around the presence of any programme or practice to promote diversity and 4.000 13% equal opportunities within the workforce. 3.500 501 416 ENVIRONMENTAL – Finding the right green path 3.000 374 13% 2.500 Notwithstanding Ferrari is a Small Volume Manufacturer and its products are not always qualified as means of transportation, 12% 2.000 the Company is closely concerned about the minimization of its impact in the environment. Their attention focuses especially 3.350 1.500 2.874 2.964 12% in energy consumptions, pollution and waste management, thanks to the adoption of circular economy principles. The same 1.000 are also adopted in the Mugello Circuit, owned by Ferrari, where thanks to a system of photovoltaic panels, eco-active materials 11% 500 and a social sustainability program (KiSS), achieved first in the world the “Achievement of Excellence” from FIA. 0 11% 2016 2017 2018 Between the greatest hits of Ferrari there is a trigeneration plant, able to produce 87% of the energy requirements of Maranello
Tot. Empl. Women Employees Women Managers plant, and a significant reduction of the cars’ emissions (CO2 280 g/km in 2018E, 404 g/km in 2008), value that is expected to drop again because of the expansion of the hybrid technologies. However, we are confident that Ferrari can still raise the Source: Company Data bar with the establishment of a sustainable packaging, environmental partnerships and targeting water a zero-carbon footprint.
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TABLE OF CONTENTS LIST OF ABBREVIATIONS 12
APPENDIX A - FINANCIALS 12 • APPENDIX A-1 KEY FINANCIALS 12 • APPENDIX A-2: INCOME STATEMENT 13 • APPENDIX A-3: BALANCE SHEET 13 • APPENDIX A-4: CASH FLOW STATEMENT 14 • APPENDIX A-5: RATIO ANALYSIS 14 • APPENDIX A-6: DUPONT ANALYSIS 15 • APPENDIX A-7: ROIC BREAKDOWN 15 • APPENDIX A-8: COMPETITIVE FINANCIAL ANALYSIS 15
APPENDIX B -BUSINESS DESCRIPTION 16 • APPENDIX B-1: PRODUCTS DESCRIPTION 16 • APPENDIX B-2: FORMULA 1 ACTIVITIES 17
APPENDIX C - INDUSTRY OVERVIEW AND COMPETITIVE POSITIONING. 18 • APPENDIX C-1: PORTER’S 5 FORCES ANALYSIS 18 • APPENDIX C-2: SWOT ANALYSIS 20
APPENDIX D - GROWTH ASSUMPTIONS & VALUATION 21 • APPENDIX D-1: GROWTH ASSUMPTION 21 × APPENDIX D-1A: SHIPMENTS ASSUMPTIONS 22 × APPENDIX D-1B: AVERAGE SELLING PRICES ASSUMPTIONS 24 • APPENDIX D-2: CAPEX & D&A ASSUMPTIONS 24 • APPENDIX D-3: 3-STAGES DCF 25 • APPENDIX D-4: RELATIVE VALUATION 25
APPENDIX E - CORPORATE GOVERNANCE 26 • APPENDIX E-1: ENTITY STRUCTURE 26 • APPENDIX E-2: BOARD COMPOSITION 27 • APPENDIX E-3: FERRARI VS PEERS 27
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LIST OF ABBREVIATIONS
ABBREVIATION FULL TERMS ABBREVIATION FULL TERM ADJ Adjusted IMF International Monetary Fund AML Aston Martin Lagonda IND Industrial APAC Asia Pacific INDIP Independent ASP Average Selling Price IPO Initial Public Offering AVG Average LCM Luxury Car Manufacturer BEV Battery Electric Vehicle M&A Mergers & Acquisitions CAGR Compound Annual Growth Rate MKT Market CAPEX Capital Expenditure MRP Market Risk Premium CAPM Capital Asset Pricing Model OEM Original Equipment Manufacturer CEO Chief Executive Officer P/E Price to Earnings Ratio CLEWI Cost of Living Extremely Well Index PBT Profit Before Taxes CONV Conversion PEG Price/Earnings to Growth Ratio CPI Consumer Price Index PSA Peugeot D&A Depreciation & Amortization R&D Research and Development DCF Discounted Cash Flow REL Relative DIR Director ROE Return on Equity DIV Dividend ROIC Return on Invested Capital EBIT Earnings before Interest and Taxes S&P Standard & Poors EBITDA Earnings before Interest, Taxes, D&A S&P GLOBAL LUX NTR 100 Worldwide luxury goods Companies Index EMEA Europe, Middle East and Africa SC&B Sponsorship, Commercial & Brand activities EV Enterprise Value SG&A Selling, General & Administrative Expenses EX Executive ST. DEV. Standard Deviation FCA Fiat Chrysler Automobiles SX AP 100 European Index of Cars & Spare Parts Manufacturers FCFF Free Cash Flow to the Firm TAM Total Addressable Market FTSE WORLD EUROPE 100 Europe Companies Index VW Volkswagen FX Forex WACC Weighted Average Cost of Capital GDP Gross Domestic Product Y Year GM General Motors YoY Year on Year HNWI High Net Worth Individual
APPENDIX A - FINANCIALS
APPENDIX A-1: KEY FINANCIALS
Key Financials (€ mn) 2014A 2015A 2016A 2017A 2018A 2019A 2020E 2021E 2022E 2023E 2024E Car sales (units) 7.255 7.664 8.014 8.398 9.251 10.131 10.449 10.944 11.389 12.628 13.070 Average growth % 4% 6% 5% 5% 10% 10% 3% 5% 4% 11% 4% Net Revenues 2.762 2.854 3.105 3.417 3.420 3.766 4.214 4.742 5.150 6.165 6.662 Revenues From Cars 1.944 2.080 2.180 2.456 2.535 2.926 3.328 3.824 4.174 5.141 5.583 Assume Spare Parts (-5%) 1.847 1.976 2.071 2.333 2.408 2.780 3.170 3.642 3.975 4.896 5.317 ASP (weighted) 0,255 0,258 0,258 0,278 0,260 0,274 0,303 0,333 0,349 0,388 0,407 Average growth % 13% 1% 0% 8% -6% 5% 11% 10% 5% 11% 5% Adjusted EBITDA 678 719 840 1.034 1.113 1.269 1.435 1.752 1.934 2.255 2.440 % margin 25% 25% 27% 30% 33% 34% 34% 37% 38% 37% 37% Adjusted EBIT 389 444 592 773 824 917 1.018 1.282 1.424 1.710 1.855 % margin 14% 16% 19% 23% 24% 24% 24% 27% 28% 28% 28% EBITDA/Net Debt (1) 1 1 2 3 4 3 3 5 (8) (2) Free cash flow from industrial activities 329 269 280 327 377 675 390 662 837 1.070 1.132 Net industrial debt (685) 937 690 508 371 337 413 545 417 (298) (1.054)
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APPENDIX A-2: INCOME STATEMENT
Income statement (€ mn) 2014A 2015A 2016A 2017A 2018A 2019A 2020E 2021E 2022E 2023E 2024E Revenues Adjusted 2.762 2.854 3.105 3.417 3.420 3.766 4.214 4.742 5.150 6.165 6.662 % yoy 18,3% 3,33% 8,8% 10% 0,1% 10,1% 11,2% 12,5% 8,6% 19,8% 8,06% COGS 1.506 1.499 1.580 1.651 1.623 1.809 1.981 2.181 2.343 2.774 2.998 % sales 55% 53% 51% 48% 47% 48% 47% 46% 45,5% 45% 45% COGS / Cars (euros) 207 195 197 196 175 178 189 191 189 188 187 Gross profit 1.256 1.356 1.525 1.766 1.797 1.957 2.174 2.561 2.807 3.391 3.664 Gross margin % 45,5% 47,5% 49,1% 51,7% 52,6% 52,0% 51,6% 54,0% 54,5% 55,0% 55,0% SG&A 300 339 295 329 327 340 369 395 422 478 509 % yoy 15,47% 12,84% -12,81% 11,46% -0,52% 3,82% 8,70% 6,87% 7,00% 13,06% 6,56% o/w Selling 132 164 146 173 168 190 215 236 259 309 335 % SG&A 44,1% 48,5% 49,6% 52,7% 51,3% 55,9% 58,2% 59,7% 61,2% 64,7% 65,8% % sales 4,8% 5,8% 4,7% 5,1% 4,9% 5,0% 5,1% 5,0% 5,0% 5,0% 5,0% o/w General & Administrative 168 174 149 156 160 150 155 159 164 169 174 % SG&A 55,9% 51,5% 50,4% 47,3% 48,7% 44,1% 41,8% 40,3% 38,8% 35,3% 34,2% R&D 541 562 614 657 643 699 782 880 956 1.199 1.296 % Sales 19,6% 19,7% 19,8% 19,2% 18,8% 18,6% 18,6% 18,6% 18,6% 19,4% 19,4% Other expenses (income), net 26 11 25 7 3 4 4 4 4 4 4 Results from investments 0 0 3 2 3 3 3 3 3 3 3 Non-recurring income/(expenses), net (1) 0 1 2 0 0 0 0 0 0 0 EBIT 389 444 595 775 827 917 1.021 1.285 1.427 1.713 1.858 Adjusted EBIT 389 444 592 773 824 917 1.018 1.282 1.424 1.710 1.855 EBIT margin % 14,1% 15,6% 19,1% 22,6% 24,1% 24,3% 24,2% 27,0% 27,7% 27,7% 27,9% Net financial income (expenses) 9 (10) (28) (29) (24) (42) (42) (42) (42) (42) (42) PBT (actual) 398 434 567 746 803 875 979 1.243 1.385 1.671 1.816 Tax 133 144 168 209 16 176 264 336 374 451 490 Tax rate 33,5% 33,2% 29,5% 28% 2% 20% 27% 27% 27% 27% 27% Net profit (actual) 265 290 400 537 787 699 715 907 1.011 1.220 1.326 Minorities 4 2 1 2 2 4,38 4,38 4 4 4 4 Net profit to owners of parent (actual) 261 288 399 535 785 695 710 903 1.007 1.215 1.322 Net Profit margin % 9,5% 10,1% 12,8% 15,7% 22,9% 18,4% 16,9% 19,0% 19,6% 19,7% 19,8%
EBITDA (€ mn) 2014A 2015A 2016A 2017A 2018A 2019A 2020E 2021E 2022E 2023E 2024E D&A 289 275 248 261 289 352 417 470 510 545 585 EBITDA 678 719 843 1.036 1.115 1.269 1.438 1.755 1.937 2.258 2.443 Adjusted EBITDA 678 719 840 1.034 1.113 1.269 1.435 1.752 1.934 2.255 2.440 % margin 24,6% 25,2% 27,0% 30,2% 32,5% 33,7% 34,1% 36,9% 37,6% 36,6% 36,6% % yoy 7,0% 6,0% 16,8% 23,1% 7,6% 14,1% 13,1% 22,1% 10,4% 16,6% 8,2%
APPENDIX A-3: BALANCE SHEET
Assets (€ mn) 2014A 2015A 2016A 2017A 2018A 2019E 2020E 2021E 2022E 2023E 2024E Goodwill 787 787 785 785 785 785 785 785 785 785 785 PPE + Intangibles 850 934 1.024 1.151 1.496 1.850 2.193 2.473 2.683 2.867 3.075 Investments and other financial assets 47 12 34 30 32 37 37 37 37 37 37 Deferred tax assets 112 123 119 94 61 62 62 62 62 62 62 Total non-current assets 1.797 1.856 1.962 2.060 2.374 2.734 3.077 3.357 3.567 3.751 3.959 Inventories 296 295 324 394 391 432 435 487 534 642 690 Trade receivables 184 158 244 239 211 248 280 315 351 410 439 Receivables from financing activities 1.224 1.174 790 733 878 1.019 1.019 1.019 1.019 1.019 1.019 Current tax receivables 3 15 1 6 128 71 71 71 71 71 71 Other current assets 52 46 54 45 64 108 108 108 108 108 108 Current financial assets 9 9 16 16 10 8 8 8 8 8 8 Deposits in FCA Group cash management pools 942 139 ------Cash & cash equivalents 134 183 458 648 794 898 677 690 818 1.533 2.289 Total current assets 2.845 2.020 1.887 2.081 2.477 2.784 2.597 2.697 2.908 3.791 4.624 Total assets 4.641 3.875 3.850 4.141 4.852 5.518 5.674 6.054 6.474 7.542 8.583
Equity and liabilities Equity attributable to owners of the parent 2.470 (25) 325 779 1.349 1.461 1.580 1.886 2.239 3.152 4.109 Non-controlling interests 9 6 5 5 5 7 10 13 17 20 23 Total equity 2.478 (19) 330 784 1.354 1.469 1.590 1.900 2.255 3.172 4.132
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Liabilities (€ mn) 2014A 2015A 2016A 2017A 2018A 2019E 2020E 2021E 2022E 2023E 2024E Employee benefits 77 78 91 84 87 87 87 87 87 87 87 Provisions 135 142 215 197 183 159 159 159 159 159 159 Deferred tax liablities 22 23 13 11 39 63 63 63 63 63 63 Total Debt 510 2.260 1.848 1.806 1.927 2.090 2.090 2.090 2.090 2.090 2.090 Other liabilities 670 655 656 620 590 921 911 900 890 879 869 Other financial liabilities 104 103 40 1 11 30 30 30 30 30 30 Trade payables 536 507 615 608 654 694 739 820 895 1.057 1.149 Current tax payables 110 125 42 29 8 5 5 5 5 5 5 Total Liabilities 2.163 3.895 3.520 3.357 3.498 4.050 4.084 4.154 4.219 4.370 4.451 Total Equity and Liabilites 4.641 3.875 3.850 4.141 4.852 5.518 5.674 6.054 6.474 7.542 8.583
APPENDIX A-4: CASH FLOW STATEMENT
Cash Flow Statement (€ mn) 2014A 2015A 2016A 2017A 2018A 2019A 2020E 2021E 2022E 2023E 2024E Cash at beginning of the year 114 134 183 458 648 794 898 677 690 818 1.533 Cash flow from operating activities: Profit before taxes 398 434 567 746 803 875 979 1.243 1.385 1.671 1.816 D&A 289 275 248 261 289 352 417 470 510 545 585 Provision accruals 66 51 82 13 16 7 0 0 0 0 0 Result from investments (3) (2) (3) (3) 0 0 0 0 0 Net finance costs 10 28 29 24 42 0 0 0 0 0 Other non-cash expenses/(income) 53 39 (38) 43 33 35 0 0 0 0 0 Net gains on disposal of PP&E, intangibles (1) (7) (3) (3) (0) 0 0 0 0 0 0 Delta inventories (66) (3) (33) (88) (5) (41) (3) (52) (46) (109) (48) Delta in trade receivables 1 16 (89) (2) 27 (37) (32) (35) (36) (59) (29) Delta in trade payables 13 (46) 106 29 40 41 45 81 75 161 92 Delta in receivables from financing activities (202) 121 405 (44) (107) 0 0 0 0 0 0 Delta other operating assets and liabilities 14 (25) 7 (73) (83) 188 0 0 0 0 0 Finance income received 5 3 4 3 3 0 0 0 0 0 Finance costs paid (18) (22) (36) (14) (34) 0 0 0 0 0 Income tax paid (141) (145) (252) (215) (88) (176) (275) (346) (385) (462) (501) Total 426 707 1.005 663 934 1.306 1.132 1.361 1.503 1.749 1.915
Cash flows used in investing activities: (290) (317) (320) (379) (637) (706) (760) (750) (720) (730) (793)
Cash flows use in financing activities: Debt repayments/proceeds 51 2108 -530 -84 83 123 0 0 0 0 0 Delta deposits and liabilities with FCA (158) (2.396) 135 ------Dividends paid to owners of the parent (133) (195) (208) (213) (271) (302) (365) Share repurchase Program (100) (387) (383) (383) (383) - - Dividends paid to non-controlling interests (15) (54) (17) (1) (2) (2) (1) (1) (1) (1) (1) Assume: Dividend Payout 30% starting 2020E 16,7% 27,6% 30,0% 30,0% 30,0% 30,0% 30,0% Total (122) (351) (411) (85) (152) (498) (593) (598) (655) (303) (366)
Translation Exchange differencies 6 10 1 (8) 1 3 0 0 0 0 0 Total change in cash and cash equivalents 20 48 275 190 146 104 (221) 13 128 716 756 Cash at end of the year 134 183 458 648 794 898 677 690 818 1.533 2.289
APPENDIX A-5: RATIO ANALYSIS
Margins 2014 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E Gross margin 45% 47% 49% 52% 52,6% 52,0% 51,6% 54% 55% 55% 55% 55% 55% 55% 55% 55% 55% EBITDA margin 25% 25% 27% 30% 32,5% 33,7% 34,1% 37% 38% 37% 37% 37% 37% 37% 37% 37% 37% EBIT margin 14% 16% 19% 23% 24,1% 24,3% 24,2% 27% 28% 28% 28% 28% 28% 28% 28% 28% 29% Net Profit margin 9% 10% 13% 16% 22,9% 18,4% 16,9% 19% 20% 20% 20% 20% 20% 20% 20% 20% 21% PBT margin 14% 15% 18% 22% 23,5% 23,2% 23,2% 26% 27% 27% 27% 27% 28% 28% 28% 28% 28%
Key Ratios 2014 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E ROE 11% 23% 257% 96% 73% 49% 46% 52% 48% 45% 36% 33% 32% 31% 30% 29% 29% Pre-tax ROA 8% 10% 15% 19% 18% 17% 18% 21% 22% 23% 22% 22% 22% 22% 23% 23% 23% ROA 5% 7% 9% 14% 16% 14% 13% 16% 17% 18% 17% 17% 17% 17% 17% 17% 17% After-tax ROC 9% 15% 20% 29% 30% 28% 25% 28% 29% 33% 34% 35% 36% 36% 37% 37% 38% Pretax ROC 14% 22% 35% 40% 33% 34% 34% 39% 40% 46% 47% 48% 49% 50% 50% 51% 52% SG&A/Sales 11% 12% 10% 10% 10% 9% 9% 8% 8% 8% 8% 8% 7% 7% 7% 7% 7% Net Debt/equity (x) -0,3x -48,3x 2,1x 0,6x 0,3x 0,2x 0,3x 0,3x 0,2x -0,1x -0,3x -0,3x -0,3x -0,3x -0,3x -0,4x -0,4x Net Debt/EBITDA (x) 0,6x 2,9x 1,7x 1,1x 1,0x 0,9x 1,0x 0,8x 0,7x 0,2x -0,1x -0,2x -0,3x -0,3x -0,4x -0,5x -0,5x Net Industrial Debt/EBITDA (x) -1,0x 1,3x 0,8x 0,5x 0,3x 0,3x 0,3x 0,3x 0,2x -0,1x -0,4x -0,5x -0,6x -0,6x -0,7x -0,7x -0,8x
Los Pollos Hermanos | 14 FERRARI N.V.
APPENDIX A-6: DUPONT ANALYSIS
DuPont Analysis (€ mn) 2014 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E EBIT 389 444 592 773 824 917 1.018 1.282 1.424 1.710 1.855 Net Revenues 2.762 2.854 3.105 3.417 3.420 3.766 4.214 4.742 5.150 6.165 6.662 EBIT Margin (%) 14% 16% 19% 23% 24% 24% 24% 27% 28% 28% 28% Net Profit 261 288 399 535 785 695 710 903 1.007 1.215 1.322 PBT 398 434 567 746 803 875 979 1.243 1.385 1.671 1.816 Tax Burden (%) 66% 66% 70% 72% 98% 79% 73% 73% 73% 73% 73% PBT 398 434 567 746 803 875 979 1.243 1.385 1.671 1.816 EBIT 389 444 592 773 824 917 1.018 1.282 1.424 1.710 1.855 Interest Burden (%) 102% 98% 96% 97% 97% 95% 96% 97% 97% 98% 98% Net Revenues 2.762 2.854 3.105 3.417 3.420 3.766 4.214 4.742 5.150 6.165 6.662 Average Tot. Assets 4.641 4.258 3.863 3.995 4.496 5.185 5.596 5.864 6.264 7.008 8.062 Asset Turnover (x) 0,60x 0,67x 0,80x 0,86x 0,76x 0,73x 0,75x 0,81x 0,82x 0,88x 0,83x Average Tot. Assets 4.641 4.258 3.863 3.995 4.496 5.185 5.596 5.864 6.264 7.008 8.062 Average Tot. Equity 2.478 1.229 155 557 1.069 1.411 1.530 1.745 2.078 2.714 3.652 Equity Multiplier 1,87x 3,46x 24,89x 7,17x 4,21x 3,67x 3,66x 3,36x 3,02x 2,58x 2,21x ROE 10,55% 23,45% 256,9%* 96,15% 73,4% 49,2% 46,4% 51,7% 48,4% 44,8% 36,2% *2016 ROE might be misleading, as it reflects the effects of the “Company Restructuring” occurred in 2015 as per effect of the Ferrari’s spin-off from FCA. Particularly, the separation was completed on January 3, 2016 and occurred through a series of transactions, among which it must be highlighted the issuance of a Note in the principal amount of GBP 2,8 bln for the acquisition of Ferrari North Europe Ltd.’s assets and business of providing sales, after-sales and support services for the Ferrari brand. APPENDIX A-7: ROIC BREAKDOWN
ROIC (€mn) 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E 2024E Operating Income 444 592 773 824 917 1.018 1.282 1.424 1.710 1.855 Tax Rate % 33% 30% 28% 2% 20% 27% 27% 27% 27% 27% NOPAT 297 417 557 807 734 743 936 1.040 1.248 1.354 BV of D 2.260 1.848 1.806 1.927 2.090 2.090 2.090 2.090 2.090 2.090 BV of E -19 330 784 1.354 1.469 1.590 1.900 2.255 3.172 4.132 Invested Capital 2.241 2.178 2.590 3.281 3.559 3.680 3.990 4.345 5.262 6.222 Average Invested Capital 2.615 2.209 2.384 2.936 3.420 3.620 3.835 4.168 4.804 5.742 ROIC 11,4% 18,9% 23,4% 27,5% 21,5% 20,5% 24,4% 24,9% 26,0% 23,6%
APPENDIX A-8: COMPETITIVE FINANCIAL ANALYSIS
We decided to compare Ferrari’s margin with both the (i) Luxury goods and (ii) mass market automotive industries, to analyze whether the Company’s current multiples (in line with other high luxury companies) are justified by similar financials and performances. Since many of these Companies haven’t released yet their 2019 results, we used the 2018 data. Luxury Panel - Given its strong pricing power (fueled by (i) a waiting list approach and (ii) volumes scarcity), Ferrari presents a 2018 Gross Margin of 52,6% (a margin which has slightly decrease in 2019 to 52%), and a 2018 EBIT Margin of 24,1% (24,3% in 2019). Moreover, it is worth notice how the Company’s ROIC is the highest within the Panel, exceeding also the 26% of Hermès. We finally want to highlight that not only Ferrari (given the nature of its business, which requires higher investments) presents a 2018 EBIT margin well below the Hermès one (2019 EBIT margin of 24,3%), but has a very lower Cash Conversion Rate than luxury average. This must be taken into consideration when thinking that Ferrari’s current multiples (according to our estimates) are higher than those of many luxury companies (Hermès included). Gross Margin % EBIT margin % Net Margin % ROA ROE ROC ROIC CapEx/Revenues Cash Conv. Rate Company 2017A 2018A 2017A 2018A 2017A 2018A 2017A 2018A 2017A 2018A 2017A 2018A 2017A 2018A 2017A 2018A 2017A 2018A Prada 67% 65% 12% 11% 8% 7% 5% 4% 8% 7% 9% 9% 7% 6% 7% 12% 99% 41% Ferragamo 60% 59% 14% 12% 9% 7% 10% 7% 17% 12% 23% 19% 17% 12% 6% 6% 191% 137% Cucinelli 43% 44% 14% 14% 10% 9% 12% 11% 21% 19% 21% 21% 18% 16% 5% 8% 121% 84% Richemont 63% 65% 15% 17% 11% 11% 6% 5% 8% 8% 9% 9% 8% 7% 17% 17% 100% 159% Hermes 67% 67% 35% 35% 22% 22% 19% 19% 26% 26% 41% 41% 26% 26% 5% 5% 117% 109% LVMH 65% 67% 19% 21% 12% 14% 8% 9% 19% 21% 21% 23% 15% 17% 6% 6% 100% 84% Kering 50% 59% 19% 29% 12% 19% 7% 11% 15% 24% 17% 25% 11% 18% 5% 6% 116% 105% AVG. LUXURY 59% 61% 18% 20% 12% 13% 10% 10% 16% 17% 20% 21% 14% 15% 7% 9% 121% 103% RACE 51,7% 52,6% 22,6% 24,1% 15,7% 22,9% 14,0% 16,4% 96,1% 73,4% 28,7% 29,6% 23,4% 27,5% 11,3% 18,6% 88,5% 37,7%
2017-2018 EBIT margin - Luxury Panel - Exhibit 42 2017-2018 Cash Conversion Rate - Luxury Panel - Exhibit 43 40% 250% 35% 200% 30%
25% 150% 20% 15% 100% 10% 50% 5%
0% 0% Prada Ferragamo Cucinelli Richemont Hermes LVMH Kering RACE Prada Ferragamo Cucinelli Richemont Hermes LVMH Kering RACE
EBIT margin % 2017A EBIT margin % 2018A 2017A 2018A
Los Pollos Hermanos | 15 FERRARI N.V.
Automotive Panel - By comparing Ferrari with other mass market automotive companies, it stands out that we are talking about two different businesses. Car manufacturers compete on volumes within a market presenting (i) low margins, (ii) low pricing power and (iii) high cyclicality whereas Ferrari’s (i) low volumes strategy and (ii) high selling prices result in higher margins and profitability, in line with the luxury industry. Gross Margin % EBIT margin % Net Margin % ROA ROE ROC ROIC CapEx/Revenues Cash Conv. Rate Company 2017A 2018A 2017A 2018A 2017A 2018A 2017A 2018A 2017A 2018A 2017A 2018A 2017A 2018A 2017A 2018A 2017A 2018A FCA 15% 14% 6% 5% 3% 3% 3% 3% 17% 15% 16% 13% 10% 10% 8% 5% 49% 137% Ford 15% 14% 3% 2% 5% 2% 3% 1% 24% 10% - - 6% 3% 4% 5% 151% 197% GM 18% 15% 7% 3% 0% 5% 0% 4% 1% 22% 8% 4% 0% 8% 19% 17% -2948% -127% Daimler 21% 20% 7% 6% 6% 4% 4% 3% 17% 11% - - 8% 5% 6% 6% -80% -143% Renault 20% 20% 7% 6% 9% 6% 5% 3% 16% 10% 5% 4% 14% 8% 6% 8% 64% 57% PSA 17% 19% 6% 8% 3% 4% 4% 5% 14% 18% - - 11% 14% 7% 6% 98% 208% Toyota 18% 19% 8% 8% 7% 8% 4% 5% 10% 13% - - 7% 9% 13% 12% -4% 25% Tesla 19% 19% -14% -1% -17% -5% -8% -3% -44% -21% -10% -1% -14% -6% 35% 11% 211% 23% Vokswagen 24% 20% 7% 8% 5% 5% 3% 3% 12% 12% - - 6% 6% 1% 1% -125% -55% BMW 25% 24% 10% 9% 9% 7% 4% 3% 17% 13% - - 8% 6% 7% 8% 16% -40% Aston Martin 34% 31% 17% 12% 8% -6% 5% -3% 82% -22% 17% 12% 9% -6% 34% 28% 299% -132% AVG. AUTO 21% 19% 6% 6% 3% 3% 3% 2% 15% 7% 7% 6% 6% 5% 13% 10% 52% 28% RACE 52% 53% 23% 24% 16% 23% 14% 16% 96% 73% 29% 30% 23% 27% 11% 19% 88,5% 37,7%
2017-2018 Gross margin - Auto Panel - Exibit 44 017-2018 EBIT margin - Auto Panel - Exibit 45 60% 30%
50% 25%
40% 20%
30% 15%
20% 10%
10% 5%
0% 0% FCA Ford GM Daimler Ren ault PSA Toyota Tesla VW BMW AML RACE FCA Ford GM Daimler Ren ault PSA Toyota VW BMW AML RACE Gross Margin % 2017A Gross Margin % 2018A EBIT margin % 2017A EBIT margin % 2018A
APPENDIX B - BUSINESS DESCRIPTION
APPENDIX B-1: PRODUCTS DESCRIPTION The Company’s current products segments are: (i) Cars, (ii) Spare Parts, (iii) Engines and (iv) Merchandising & Licensing. CARS SEGMENT The Company’s current product range is divided into four main segments, combining in different ways a predilection for performance or comfort: the Sport Range, the GT range, the Special Series and the Iconas. Sport - Sport cars are the highest expression of Ferrari’s legendary manufacturing heritage, from which sprung some of the most iconic fireballs ever produced. Their design is driven by (i) performance and (ii) aerodynamics, as this product lines is dedicated to clients chasing high driving performances and emotions. They also benefit from transferred technologies from the F1 Racing Team.
GT - GT cars are characterized by a less aggressive design and more refined interiors. Whilst they maintain the expected performances of a Ferrari, they pursue a higher life-on-board quality and comfort.
Los Pollos Hermanos | 16 FERRARI N.V.
Icona - Introduced in 2018 to celebrate the 70th anniversary of the Company, this new products line is intended to reinterpret some iconic Ferraris of the past in a modern way, with a very high attention on the quality of design and materials. The first two models have been presented in 2018: Monza SP1 & SP2.
Special Series - Limited editions and one-off, they usually present higher performances as they draw inspiration from the “races” world.
SPARE PART Through a worldwide network of +170 carefully selected dealers operating in 190 point of sales (2018 Company Data), Ferrari distribute spare parts clients that need a substitution or that desire further customization to increase their model performances. Ferrari is able to deliver spare parts for up to 25 years old models and can help a third party to manufacture even older parts. ENGINES
Apart from producing engines for its models and to rent others to F1 racing teams, Ferrari since 2003 provides Maserati with 3.0-liter, 3.8-liter twin- turbo V8 and 4.7-liter naturally aspirated V8. The Engine Supply Deal with the FCA’s controlled company is going to end by 2020.
BRAND - MERCHANDISING: FERRARI’S STORES Ferrari counts a total of 35 Ferrari Stores worldwide, of which 17 franchised (including 5 Ferrari Store Junior) and 18 stores owned and directly managed by Ferrari. They offer a wide product range of clothing and gadgets to long-run and short-run aficionados. Hats, t-shirts, suitcases and mugs are just few examples of what one can find in the well-designed red shops. All the monobrand franchise stores must follow central guidances to not to damage the brand BRAND - LICENSING: THEME PARKS
Inaugurated in 2010, Ferrari World is the Company’s iconic theme park in Yas Island, Adu Dhabi. In its 85000sqm it includes 5 roller coasters, 2 thrill rides and many family and children’s rides. It is managed by Farah Experiences but owned by the Emirate States. Opened in 2017, Ferrari Land is the second theme park. It extends with its 75000sqm the already existing PortAventura Park, located in Barcelona, Spain. Among all its rides, the remarkable one is the Red Force, the tallest and the fastest rollercoaster in Europe ever built.
BRAND - EXPERIENCE: E-SPORTS In 2019 Ferrari introduced its E-sports platform thanks to which will be launched (by H1 2020) the first E-sport championship. Events that will see the participation of the Ferrari’s Driver Academy will follow. In this way the Company will confirm, once again, its relationships with Electronic Arts, Ubisoft, Sony and Microsoft all longstanding Ferrari’s licensees.
APPENDIX B-2: FORMULA 1 ACTIVITIES
SCUDERIA FERRARI
With 15 Formula 1 World Drivers Championship titles, 16 F1 World Construction Championship titles and 234 Gran Prix won, Ferrari has no equals in the history of racing competitions. Although the last World Drivers Championship titles will turn 12 years old at 31st Oct 2020, Ferrari’s dedication in R&D is indisputable today as it was in 1947, when Enzo Ferrari produced the first racing car. Not by chance Ferrari has gained its high reputation worldwide.
SPONSORSHIP & TV RIGHTS
With 490 million television F1 viewers, Ferrari receives broadcasting royalties from Formula One Group and it benefits from the global promotion without incurring in further marketing expenses. Moreover, Ferrari sponsors 9 firms, among which Philip Morris, title partner since 40+ years. .
Los Pollos Hermanos | 17 FERRARI N.V.
APPENDIX C - INDUSTRY OVERVIEW
APPENDIX C-1: PORTER’S 5 FORCES ANALYSIS
Internal Rivalry Competition in the High Luxury Car market is mainly driven by (i) the strength and the differentiation of the brand, (ii) the appeal of the cars in terms of styling, performance and innovation and (iii) the regular renewal of the model offering in order to constantly stimulate customers demand. In order to analyze Ferrari’s relative performances, we selected its 3 main competitors (Aston Martin, McLaren and Lamborghini) to compare their models’ objective characteristics, for the 4 traditional segments: Sport, GT, Special Series and Hypercars. The results confirm the Ferrari superior relative quality since (i) the Company produces models with higher basis horse power respect to the average of its competitors for each segment (ii) there is no segment in which the Ferrari’s models average acceleration (0-100 Km/h) is not the fastest (iii) the average top speed is the highest for the sport and the GT segment.
Segment Avg. BHP Avg. 0-100 Km/h (sec) Avg top speed (Km/h)
Ferrari Competitors Ferrari Competitors Ferrari Competitors Sport 753 618 2.80 3.23 337.42 329.66 GT 655 590 3.36 3.56 327.00 320.38 Special Series 769 665 2.90 3.43 313.33 334.33 Hypercar 1036 974 2.50 2.73 350.00 374.16
Moreover, we believe that Ferrari has no equal in the current competitive environment also because of i) its relative defensive quality proved by the lower standard deviation of YoY Revenues and shipments growth (graph 1) ii) its ability to never fail a model launch as demonstrated by the an event study analysis we performed on ten trading days before and after the unveiling days of LaFerrari Aperta, F60, 812 Superfast, FXX K EVO, Portofino, 488 Pista, F8 Tributo, 488 Pista Spider, F8 Tributo, Monza SP1, Monza SP2 and Roma. The p-values of CARs, being always higher than 0.10 for every announcement day prove the statistical insignificance of the negative CARs here presented. Therefore, the model unveilings didn’t negatively surprise the investors (graph 2). iii) Ferrari technological innovation edge proved by having the one of higher R&D/Net Revenues from cars ratio among the LCMs (graph 3). Finally, the Ferrari uniqueness has been wisely priced by the Company as demonstrated by the higher ASP of its models respect to the ones of its competitors - (graph 4).
Buyer Power The market is characterized by high product differentiation and a relatively high buyer concentration respect to the wider mass market automotive industry. The ability to forge and maintain a longstanding relationship with the top-end clientele is crucial. Ferrari proved to be successful in this given its 65% clients owning more than one model thank (but not only) o the level of customization of its models and Corse Clienti activities. Backward integration however is not a concrete possibility given the front-end nature of the business.
Supplier Power Given the large number of suppliers the LCMs need to interact with, an appropriate supply chain management constitutes a key factor to ensure that continuity, cost, quality and delivery targets are met. LCMs and suppliers mutually represent a small fraction of net revenues and COGS of their overall State of Income amounts. Ferrari, for instance, interacts approximately with 750 different suppliers to buy the 40.000 different production inputs. Forward integration seems unlikely due to the lack of substantial synergies’ creation.
Threat of Substitutes The luxury car market is experiencing with no doubt a selling volumes trend as pictured by the graph XX. The SUV segment is the one in which the growth was particularly the fast and can represent a short- term weakness for Ferrari’s next 2 FYs since Purosangue will be launched only in 2022. The SUV segment has indeed represented a new consistent source of revenues for Lamborghini (as shown in Exhibit 15) and for Rolls-Royce whose Cullinan model made the sales of the British automaker grow by 22% in only 2 months after the initial 2018 launch, accounting for 13% of its FY18 sales. It is also expected to be a crucial factor to prove Aston Martin ability to sell volumes in the market through the 5k DBX units scheduled for 2021 and in the following years (since it’s expected a grand total of 12k units sold by 2023). However, we also recognise that a concrete cannibalization effect has constituted a constraint to the shipment growth in the last years and examples of this effect are provided by Bentley’s Bentayga and Maserati’s Levante on 2016-2018 volumes (Exhibit 46 and 47). In our view, we believe that Ferrari won’t experience a similar effect since Purosangue seems to be addressed, similarly to Aston Martin’s DBX, to Eastern markets (China and Russia, primarily) where the appetite for the high luxury SUV segment is strong and the Ferrari’s exclusivity is far from being questioned given the Company marginal presence respect to the size of the TAM. A short list of SUV launches of Ferrari’s competitors is here provided.
Company SUV models BHP Year Price (€) Rolls Royce Cullinan 563 2018 338.000 Bentayga W12 600 2016 245.220 Bentayga Diesel 429 2017 182.550 Bentley Bentayga V8 542 2018 183.720 Bentayga Hybrid 456 2018 172.142 Bentayga Speed 626 2019 245.200 Lamborghini Urus 650 2018 269.900 Cayenne 335 2003 79.494 Cayenne E-Hybrid 456 2014 94.866 Porsche Cayenne S 434 2002 97.428 Cayenne Turbo 452 2002 146.106 Cay. Turbo S E-hyb 670 2019 177.826
Los Pollos Hermanos | 18 FERRARI N.V.
Company SUV models BHP Year Price (€) Levante 345 2016 73.417 Levante Gransport 424 2019 107.700 Levante Granlusso 424 2019 107.700 Maserati Levante S 424 2016 96.500 Levante Diesel 271 2016 91.064 Levante Trofeo 582 2018 158.907 Levante GTS 550 2018 139.600 AML DBX 542 2020 197.000
Bentayga cannibalized Bentley’s shipments … - Exhibit 46. … as it did Maserati’s Levante - Exhibit 47 12.000
9.000 5.586 6.240 6.422 6.000 11.020 10.120 10.004
3.000 5.437 4.849 4.072
0 2013 2014 2015 2016 2017 2018 BENTLEY BENTAYGA Source: Company Data Source: Company Data
Threat of new Entrants The heavy investments of existing market players and their ability and willingness to sell volumes by preserving or enhancing the performances, the design and the finishing represent the main threats to Ferrari in the short term, whereas the penetration of new luxury electric car manufacturers may erode in the long run the desirability of all the traditional ICEs' car producers. At the current competitive environment, it’s evident that the full electric conversion of the product portfolio is a problem only for the high-volume car producers, more engaged to deal with the Green Wave since i) the 2015 diesel scandals, ii) new environmental legislations and iii) their higher carbon footprint respect to LCMs and iv) the lower entry barriers respect to LCMs. Even though traditional LCMs has started to highly invest in full-electric research and development since the last 5 years, the difficulties to engineer high performance models are apparent: Aston Martin, for instance, although it started to work on its Rapide E project in 2015, indefinitely suspended its first electric car (which was expected to be delivered in 2020) and postponed the launch of its all-electric Lagonda EV from 2022 to no earlier than 2025. Being the EV luxury market currently characterized by high capital expense entry barriers and very low volumes, we feel confident to state that the Ferrari’s appeal won’t be jeopardized in the short term. A list of the main luxury EV manufacturers is provided below.
Manufacturer Model Year BHP Price ($) 0-100 km/h (sec) Top speed (km/h) Taycan 4S 2020 523 103800 4 250 Taycan 4S Plus 2020 563 110000 4 250 Porsche Taycan Turbo 2020 671 150900 3.2 260 Taycan Turbo S 2020 751 185000 2.6 260 Taycan Cross Turismo Under Test 590 Unknown 3.5 250 Tesla Roadster 2020 2020 >1000 250000 1.9 >400 AML Rapide E Suspended 612 330000 4 249 Pininfarina Battista 2020 1900 2270000 2 349 Concept S 2016 1384 Unknown 2.5 365 Rimac C_Two 2018 1914 2100000 1.85 415 Lotus Evjia Under Test 1972 2100000 3 >320 NIO EP9 2016 1341 1480000 2.7 350 Ariel P40 2020 1180 256000 2.4 261 Aspark Owl 2020 1150 3200000 1.9 400 Xing Mobility Miss R 2018 1314 1000000 1.9 300 Dendrobium D1 2018 1800 >1500000 2.7 >320 Chevy Genovation GXE 2019 800 750000 3 329 Drako GTE 2020 1200 1250000 2 330 Source: Team Elaborations, Company Data
Los Pollos Hermanos | 1819 FERRARI N.V.
Porter’s 5 Forces Analysis related Charts
YoY Shipments Growth - Ferrari vs Peers - Graph 1 R&D/Sales: Ferrari’s vs Peers - Graph 3 ASP: Ferrari vs Peers - Graph 4
0,25 400.000 € 250% 350.000 € 200% 0,2 300.000 €
150% 250.000 € 0,15 100% 200.000 €
50% 0,1 150.000 €
100.000 € 0% 0,05 2012 2013 2014 2015 2016 2017 2018 50.000 € -50% - € 0 Porsche AML Maserati 2014 2015 2016 2017 2018 Ferrari Aston Martin Lamborghini Maserati Porsche McLaren Lamborghini Ferrari Lagonda Ferrari AML Maserati McLaren Lamborghini Porsche Sources: Team Estimates, Company Data Ferrari’s new models launches didn’t affect its share price - Graph 2 Model: Announcement date CAR (1) p-value CAR (-10;0) CAR (1;10) CAR (-10;+10) LaAperta 01/10/2016 0.55 0.0864 -0.0057 0.0807 F60 America 13/10/2016 0.37 0.0298 0.0146 0.0444 812 Superfast 07/03/2017 0.37 -0.0180 -0.0216 -0.0396 FXX K EVO 27/10/2017 0.23 -0.0112 0.0333 0.0221 Portofino 07/09/2017 0.59 -0.1149 -0.0331 -0.1480 488 Pista 08/04/2018 0.56 -0.0490 -0.0383 -0.0873 F8 Tributo 05/03/2019 0.89 0.0056 -0.0384 -0.0328 488 Pista Special, Monza SP1 SP2 02/10/2019 0.24 -0.0071 0.0185 0.0115 Roma 14/11/2019 0.39 0.0243 0.0409 0.0651 CAARs -0.006 -0.003 -0.01
APPENDIX C-2: SWOT ANALYSIS
Strenghts Opportunities An increase in the ASP can bring in further financial Strongest brand in the world according to Brand Brand Average Selling Price improvements, as well as preserving the exclusivity of the Finance, making Ferrari the most iconic car in the world brand, even in case of a consistent volume increase Outstanding financial results could allow the Company A line-up enlargement could help Ferrari to (i) broaden its Product’s range Strong cash generation to carefully select and exploit new opportunities, customer base, (ii) strengthening its presence in higher enlargement protecting at the same time the shareholders' interests growing countries and (iii) attract new generations
An acknowledged expertise and a very conservative Keep on pursuing a hybrid revolution could result in An incomparable management are the main peculiarities of the Board and higher sustainable commitment (by slashing its total Hybrid Revolution mastermind the Management, both of them well aware of what the carbon footprint), reducing Ferrari's exposure to change in name Ferrari means regulations whilst enhancing the cars performances
The F1 Competition participation and the countless Improving the driving experience dimension could help E-sport and driving A history of speed victories are the engine for the development and the Ferrari to attract new generation, which are expected to be experiences demonstration of its technological superiority more interested in experiences rather than property
Threats An enthusiastic Ferrari’s community, a key element for Loyal Clientele Legislation changes, regarding the fuel economy, the the creation of a strong book building The “Green Wave” noise emissions and the pollutant emissions are all aspects that could damage Ferrari’s business Ferrari’s shipments have prooved to be particularly Unpredictable changes in the habits and tastes of the Inelastic demand consistent also in periods of adverse global economic Status Symbol HNWIs conditions A controlled growth strategy and a waiting list mechanism can prevent uncomfortable falls in Losses in the perception of the brand’s excellence deriving Defensive qualities Brand dilution and minor recession periods, given its wealthy clientele from an overly volume production and poor F1 residual value performances Weaknesses As volumes increase it might become more difficult to Dependence on manufacturing facilities in Maranello maintain best-in-class quality standards, producing the Single plant reliance Recalls and Modena risk of more manufacture blemishes and consequent higher costs for the replacement of those parts Whether a full-electric shift should become an imperative, The need to return in F1 as the winners to keep on as Government’s regulations are becoming increasingly F1 comeback representing the industry benchmark in terms of Electric shift tightening, Ferrari could lose one of its main peculiarities: innovation and performances the roaring sound of its engines (which has historically been at the base of its success)
Los Pollos Hermanos | 20 FERRARI N.V.
APPENDIX D - GROWTH ASSUMPTIONS AND VALUATION
APPENDIX D-1: GROWTH ASSUMPTION Ferrari’s topline is composed by four different Revenue segments: (i) Cars & Spare Parts (77,7% of 2019 Net Revenues, vs 74,1% in 2018), (ii) Commercial, Brand & Sponsorship (14,3% of 2019 Net Revenues, vs 14,8% in 2018), (iii) Engines (5,3% of 2019 Net Revenues, vs 8,3% in 2018 and (iv) Other (3% of 2019 Net Revenues, vs 3% in 2018 | including net revenues deriving from the management of both the Fiorano and Mugello circuits). In order to evaluate the Company, we made different growth assumptions for each business line. Particularly, our focus has been mainly drawn by the Cars Segment (see Appendix D-1A & D-1B), whereas for the other revenue lines (given their marginal contribution to Ferrari’s net revenues), we made conservative estimates, as we are not expecting the Company to make significant moves over the next years.
Commercial, Brand & Sponsorship - This business line includes revenues coming from two main sources: F1 activities and Brand Activities. The F1 segment includes revenues from (i) Ferrari’s share of the World Championship TV rights (received from Formula One Management, the owning Company of the competition) and (ii) Sponsorship agreements. The Brand Activities segment includes revenues from merchandising, licensing, theme parks and other brand related initiatives. Brand Activities - The Company recently restructured its franchising network with the goal of cleaning-up the brand image, and to re-focus the merchandising activities towards higher-end products and services. According to the management, Revenues from branding are expected to represent around 10% of EBIT in 7-10 years. After assuming an 80% margin, we are expecting revenues from brand to represent more than 9% of EBIT by 2023E, but to remain flat at around 8/9% of EBIT for the incoming years, as per results of our conservative assumptions over brand exploitations opportunities. We therefore assumed a flat 2020E-2023E growth rate of 23%, in line with the previous 5Y average. Starting 2024E, then, we assumed a 7,2% flat growth rate, in line with the past 10Y Net Revenues CAGR. Formula 1 Activities - Revenues from Formula 1 Activities mainly depend by the overall success and attention raised by the competition in terms of worldwide popularity, since from that depend both (i) TV rights revenues and (ii) the signing of new Sponsorship agreements. The Circus has targeting an increase in the number of races to 25/year (from a total of 21 in the last season). On top of this, it is also trying to broaden the worldwide Competition appeal by strengthening its global footprint and adding new locations. We therefore decided to calculate the historical the average revenues/race ratio, as a proxy for the future growth of this business segment. We then multiplied the revenues/race ratio for the number of races/years, that we expect to meet the target of 25 races/year by 2026E, and to remain stable until 2030E. Moreover, we also added an YoY increase in the Revenues/Race ratio in line with the World CPI inflation growth expectations. This resulted in a 2019-2023E CAGR of 3%, and a 2023E-2030E CAGR of 2%.
Revenue Growth in Formula 1 Activities - Exhibit 48 Revenue Growth in Brand Activities & % on EBIT - Exhibit 49 6,0% 250 10% 500 9% 5,0% 200 8% 400 4,0% 7% 150 6% 300 3,0% 525 5% 490 519 453 452 480 2,0% 100 4% 200 424 196 160 3% 1,0% 130 100 50 106 2% 0,0% 70 87 21,19 21,56 21,50 21,82 22,27 22,55 22,81 53 1% 0 -1 ,0% 0 0% 2017 2018 2019 2020E 2021E 2022E 2023E 2017 2018 2019 2020E 2021E 2022E 2023E Revenues/Race Revenues/Race growth % Brand Activities % Branding on EBIT
Source: Team Estimates, Company Data Source: Team Estimates, Company Data
Engines - This business line includes (i) revenues from the rental of Ferrari’s engines to other Formula 1 Racing Team and (ii) revenues from the sale of V6 and V8 engines to Maserati (a partnership that is expected to end by 2023E). Therefore, we decided to make two different growth assumption: we projected a -3,8% flat decrease until 2023E (a rate in line with the past 5Y average, modelling the slowdown in Engines deliveries to Maserati), and a flat 3% increase starting 2023E, in line with the historical long-term CLEWI inflation.
Revenue Growth 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E Cars and spare parts 2.080 2.180 2.456 2.535 2.926 3.328 3.824 4.174 5.141 5.583 6.063 6.584 7.150 7.765 8.433 9.158 Growth rate % 7,0% 4,8% 12,7% 3,2% 15,4% 13,8% 14,9% 9,2% 23,2% 8,6% 8,6% 8,6% 8,6% 8,6% 8,6% 8,6% Engines 219 338 373 284 198 190 183 176 176 182 187 193 198 204 210 217 Growth rate % -29,6% 54,3% 10,4% -23,9% -30,3% -3,8% -3,8% -3,8% -3,8% 3,0% 3,0% 3,0% 3,0% 3,0% 3,0% 3,0% Commercial Brand & Sponsorship 441 488 494 506 538 586 620 678 721 766 789 836 862 889 917 947 Growth rate % 5,8% 10,7% 1,2% 2,4% 6,3% 8,9% 5,8% 9,4% 6,2% 6,2% 3,0% 6,0% 3,0% 3,1% 3,2% 3,3% F1 Revenues 386 422 424 453 452 480 490 519 525 556 564 595 603 612 621 629 Growth rate % 1% 9% 0% 7% 0% 6% 2% 6% 1% 6% 1% 6% 1% 1% 1% 1% Brand Activities 55 66 70 53 87 106 130 160 196 210 225 241 258 277 296 318 Growth rate % 50% 19% 7% -24% 62% 23% 23% 23% 23% 7,2% 7,2% 7,2% 7,2% 7,2% 7,2% 7,2% % Branding on EBIT: 80% 9,96% 8,90% 7,27% 5,18% 7,55% 8,34% 8,13% 8,97% 9,16% 9,05% 8,96% 8,85% 8,76% 8,68% 8,59% 8,50% Other 114 99 94 95 104 109 115 121 128 132 137 141 146 152 157 162 Growth rate % 26,67% -13,16% -5,05% 1,06% 9,47% 5% 5,25% 5,25% 5,25% 3,5% 3,5% 3,5% 3,5% 3,5% 3,5% 3,5% Total Revenues 2.854 3.105 3.417 3.420 3.766 4.214 4.742 5.150 6.165 6.662 7.175 7.755 8.357 9.010 9.718 10.484 YoY % 3,33% 8,79% 10,05% 0,09% 10,12% 11,91% 12,53% 8,59% 19,72% 8,06% 7,71% 8,07% 7,77% 7,81% 7,85% 7,89% CAGR 2019-2023E 10,3% CAGR 2023E-2030E 4,9%
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Cars & Spare parts - Since the presentation of the 2018-2022E Industrial Plan Ferrari has entered what we consider a revolutionary phase of its history, with a strategy that includes (i) a consistent volume increase, (iii) the entrance in new products segments (with the Purosangue SUV) and (iii) the strengthening of its presence in countries presenting higher growth potential (both from the GDP and number of HNWIs perspectives). However, as to avoid the risk of overestimate Ferrari’s growth potential on the wake of any enthusiasm for its incredibly strong past financial performances, we decided to start our analysis from what we consider to be the three most “reliable” fact: (i) 10 new models left to be launched before the end of 2022, (ii) an incoming consistent increase in the ASP of the whole lineup and (iii) there’s “physical” room for expansion in the Maranello’s facilities.
Moving with an order, we made specific YoY growth assumptions for both (i) cars shipments and (ii) ASP until 2023E, just before assuming a flat 2024E-2030E growth rate in line with the past Company’s performances. APPENDIX D-1A: SHIPMENTS ASSUMPTION The starting point of our analysis has been the analysis of the past and current Ferrari’s product offer, as we wanted to make assumptions around the average number of cars/model sold each year. The data we could count on were (i) the yearly shipments and (ii) the number of cars produced for the Special Series and Icona models, as Ferrari doesn’t give specific insights around the number of “cars/GT & Sport models” it sells every year. Firstly, by using the Company’s data, we looked at the past. We relied on official yearly shipments declared by the Company, which not include Hypercars, Fuoriseries and Track Cars. As you can see in the tables below, the Company has sold (under our estimates) around 1.200/1.300 cars x GT & SPORT models until 2019.
Historical model launch cadence and lifetimes SPORT 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E F430 x x x x x F430 Spider x x x x x 599 GTB Fiorano x x x x x x x 458 Italia x x x x x x x 458 Spider x x x x x F12berlinetta x x x x x x 488 GTB x x x x x 488 Spider x x x x x 812 Superfast x x x x F8 Tributo N1 x x SF90 Stradale N1 x 812 GTS N1 x F8 Spider N1 x
GT 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E 612 Scaglietti x x x x x California x x x x x FF x x x x x x California 30 x x x California T x x x x GTC4Lusso x x x x GTC4Lusso T x x x x Portofino x x x Roma N1 x
# SPECIAL 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E 599 Superamerica x x 1.200 F430 Scuderia x x x x 499 Scuderia Spider x x 599 599 GTO x x x 80 SA Aperta x x x 458 458 Speciale x x x 499 458 Speciale A x x 799 F12 tdf x x x 599 488 Pista x x x 599 488 Pista Spider x x
ICONA 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E Monza SP1 x x Monza SP2 x x
PAST SUMMARY 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E #Sport + GT Models 3 4 5 5 6 3 5 6 5 6 7 6 7 6 7 8 Tot. Shipments 5.409 5.671 6.465 6.587 6.193 6.573 7.195 7.318 7.000 7.255 7.664 8.014 8.398 9.251 10.131 10.449 Growth YoY % 5% 14% 2% -6% 6% 9% 2% -4% 4% 6% 5% 5% 10% 10% 3% Special & Icona 280 280 300 550 550 666 226 226 153 485 752 512 336 150 275 545 Totale excl. S&I 5.130 5.392 6.165 6.038 5.644 5.907 6.969 7.092 6.847 6.770 6.912 7.502 8.062 9.017 9.857 9.904 # GT&SPORT/Model 1.710 1.348 1.233 1.208 941 1.969 1.394 1.182 1.369 1.128 987 1.250 1.152 1.503 1.408 1.238
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As Ferrari has introduced 5 new models in 2019 (4 Sport and 1 GT models), this analysis helped us in understanding the historical average number of cars sold by Ferrari for these two car segment, and to use it as a proxy for our future estimates. Considering that the Company has announced 2 new launches in 2020E (which we expect to be 1 new GT and 1 new Sport, as we modelled the 812 Superfast and GTC4 Lusso T productions to end in 2021 and 2022) , leaving a total of 8 new models to be announced by 2022E (in order to complete the Industrial Plan). Since Ferrari has declared that its line-up enlargement will be well balanced across different segment, we assumed 4 new launches in 2021E (1 new model for each segment, including a new Special Serie and a new Icona), and 4 new launches in 2022E (including the Purosangue one, whose shipment we expect to start in 2023E). We also want to highlight that we based our assumptions on the historical average models lifetime for each different segment: SPORT 5,6 years | GT 4,6 years | Special Series 2,7 years and Icona 2,5 years.
Our future (i) models launch cadence, (ii) lifetimes and (iii) diversification projections - Team Estimates SPORT 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E 488 GTB x x x x x 488 Spider x x x x x 812 Superfast x x x x x F8 Tributo N1 x x x x x SF90 Stradale N1 x x x x 812 GTS N1 x x x x F8 Spider N1 x x x x NEW MODEL N1 x x x NEW MODEL N1 x x NEW MODEL N1 x
GT 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E GTC4Lusso x x x x GTC4Lusso T x x x x x x Portofino x x x x x NEW MODEL N1 x x x NEW MODEL N1 x x Purosangue N1 x Roma N1 x x x x
SPECIAL 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E 488 Pista x x X x 488 Pista Spider x X x x NEW MODEL N1 x x New Model N1 x
ICONA 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E Monza SP1 x x x Monza SP2 x x x New Icona N1 x x New Icona N1 x
FUTURE SUMMARY 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E #Sport + GT models 3 4 5 5 6 3 5 6 5 6 7 6 7 6 7 8 10 11 11 Shipments 5.409 5.671 6.465 6.587 6.193 6.573 7.195 7.318 7.000 7.255 7.664 8.014 8.398 9.251 10.131 10.449 10.944 11.389 12.628 Growth YoY % 5% 14% 2% -6% 6% 9% 2% -4% 4% 6% 5% 5% 10% 10% 3% 5% 4% 11% Special & Icona 280 280 300 550 550 666 226 226 153 485 752 512 336 150 275 544 544 499 649 Totale excl. S&I 5.130 5.392 6.165 6.038 5.644 5.907 6.969 7.092 6.847 6.770 6.912 7.502 8.062 9.017 9.857 9.904 10.400 10.890 11.979 # GT&SPORT/Model 1.710 1.348 1.233 1.208 941 1.969 1.394 1.182 1.369 1.128 987 1.250 1.152 1.503 1.408 1.238 1.040 990 1.089
Starting 2020E, as you can see, we are expecting Ferrari to deliver (i) 549 Special & Icona cars and (ii) an average of 1.238 cars x each GT & Sport models resulting in 2020E total GT & Sport shipments of 9.900. We arrived at our 1.238 cars/model by considering the past 5Y average, starting in 2014 (whit the removal of the self-imposed cap on volumes). After 2020E, as Ferrari’s line-up increases, we are expecting the Company to reduce the average number of cars/models sold each year (a strategy that could help the Company to preserve the exclusivity of the single models, whilst also sustaining their Residual Values). Therefore, we projected the average shipments to decrease to 990 units per year, just before bouncing back to 1.089 in 2023E, reflecting the first deliveries of the Purosangue (which could have a strong impact on Ferrari’s volumes, in line with Lamborghini’s Urus and Rolls Royce’s Cullinan). Our assumptions on shipments produced a 2019-2023E CAGR of 4,5%, with our shipments exceeding the threshold of 13.000 units/year by 2024E. Starting 2024E, then, we modelled a flat 3,5% shipments growth until 2030E, with shipments to exceed the 15.000 units/year by 2029E.
Car growth YoY 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E Car sales (units) 8.398 9.251 10.131 10.449 10.944 11.389 12.628 13.070 13.527 14.001 14.491 14.998 15.523 16.066 Growth % 5% 10% 10% 3% 5% 4% 11% 3,5% Revenues from Cars & spare parts 3.417 3.420 3.766 4.214 4.742 5.150 6.165 6.662 7.175 7.755 8.357 9.010 9.718 10.484 Average (weighted) 0,278 0,260 0,274 0,303 0,333 0,349 0,388 0,407 0,427 0,448 0,470 0,493 0,517 0,543 Growth % 8% -6% 5% 11% 10% 5% 11% 4,93%
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APPENDIX D-1B: AVERAGE SELLING PRICES ASSUMPTIONS - 2020E - 2023E
After making detailed growth assumptions for Ferrari’s future shipments, we then focused on the second key component of the Company’s results in the Cars & Spare parts segment: the Average Selling Price of it vehicles. Our growth assumptions are based on two different steps: (i) analysis of current models selling prices and (iii) projections of future ASP weighted by model contribution by assuming the 2020E-2022E new models selling prices. Current Line-Up Selling prices - In order to estimate the current ASP of Ferrari’s total shipments, we took the official Italian recommended selling prices for existing vehicles, and then we assumed the future selling prices for the models to be launched before 2022. As we believe Ferrari’s ASP is going to increase over the next years, we assumed that every new model should cost no less than the most expensive existing model for each car segment, plus a +2% increase, reflecting the historical long term luxury goods inflation (we used the Cost of Living Extremely Well Index - CLEWI as a benchmark).
Estimated Selling Prices for the new models to be launched by 2022E (EUR) Roma Monza SP1 Monza SP2 SF90 Purosangue Sport 2021 Sport 2022 Sport 2023 GT 2021 GT 2022 Icona 2021 Icona 2022 Special 2022 Special 2023 225.000,0 1.600.000 1.600.000 470.000 325.000 478.673 487.505 496.501 342.200 348.515 1.600.000 1.600.000,0 332.422 338.557
2020E - 2023E ASP growth YoY as new expensive models enter Ferrari’s lineup - Team Estimates 2020E 812 GTS 812 Superfast F8 spider F8 Tributo GTC4Lusso GTC4Lusso T Portofino SF90 488 Pista Spid. 488 Pista Monza SP1 ASP (€) Sugg. Price (€) 336.000 303.727 262.000 236.000 273.060 236.525 198.061 470.000 326.400 296.000 1.600.000 20% 403.200 364.472 314.400 283.200 327.672 283.830 237.673 564.000 391.680 355.200 1.920.000 22% 314.496 284.288 245.232 220.896 255.584 221.387 185.385 439.920 305.510 277.056 1.497.600 Adj.Price 314.496 284.288 245.232 220.896 255.584 221.387 185.385 439.920 305.510 277.056 1.497.600 # vehicles 1.238 1.238 1.238 1.238 1.238 1.238 1.238 1.238 150 149 249 10.499 Tot. Rev. (€ mn) 393.120 355.361 306.540 276.120 319.480 276.734 231.731 549.900 45.750 41.489 373.651 303.367
2021E 812 GTS 812 Superfast F8 spider F8 Tributo Sport 21 SF90 GTC4Lusso T Portofino Roma GT 21 488 Pista Spid. 488 Pista Monza SP2 ASP (€) Sugg. Price (€) 336.000 303.727 262.000 236.000 478.673 470.000 273.060 198.061 225.000 342.200 326.400 296.000 1.600.000 25% 420.000 379.659 327.500 295.000 598.341 587.500 341.325 247.576 281.250 427.750 408.000 370.000 2.000.000 22% 327.600 296.134 255.450 230.100 466.706 458.250 266.234 193.109 219.375 333.645 318.240 288.600 1.560.000 Adj.Price 327.600 296.134 255.450 230.100 466.706 458.250 266.234 193.109 219.375 333.645 318.240 288.600 1.560.000 # vehicles 1.040 1.040 1.040 1.040 1.040 1.040 1.040 1.040 1.040 1.040 148 148 248 10.944 Tot. Rev. (€ mn) 343.980 310.941 268.223 241.605 490.041 481.163 279.545 202.765 230.344 350.327 47.656 43.218 389.220 332.751
2022E 812 GTS F8 spider F8 Tributo SF90 Sport 21 Sport 22 GTC4Lusso T Portofino Roma GT 2021 GT 2022 488 Pista Special 22 Icona 21 ASP (€) Sugg. Price (€) 336.000 262.000 236.000 470.000 478.673 487.505 236.525 198.061 225.000 342.200 348.515 326.400 332.423 1.600.000 30% 436.800 340.600 306.800 611.000 622.275 633.757 307.483 257.479 292.500 444.860 453.069 424.320 432.150 2.080.000 22% 340.704 265.668 239.304 476.580 485.374 494.331 239.836 200.834 228.150 346.991 353.394 330.970 337.077 1.622.400 Adj.Price 340.704 265.668 239.304 476.580 485.374 494.331 239.836 200.834 228.150 346.991 353.394 330.970 337.077 1.622.400 # vehicles 990 990 990 990 990 990 990 990 990 990 990 200 149 150 11.389 Tot. Rev. (€ mn) 340.704 265.668 239.304 476.580 485.374 494.331 239.836 200.834 228.150 346.991 353.394 66.194 50.224 243.360 349.018
2023E 812 GTS F8 Spider F8 Tributo SF90 Sp. 21 Sp. 22 Sp. 23 Roma GT 21 GT 22 SUV Spe. 22 Spe.. 23 Icona 21 Icona 23 ASP (€) Price (€) 336.000 262.000 236.000 470.000 478.673 487.505 496.501 225.000 342.200 348.515 325.000 332.423 338.557 1.600.000 1.600.000 25% 420.000 327.500 295.000 587.500 598.341 609.382 620.627 281.250 427.750 435.643 406.250 415.529 423.196 2.000.000 2.000.000 22% 327.600 255.450 230.100 458.250 466.706 475.318 484.089 219.375 333.645 339.802 316.875 324.112 330.093 1.560.000 1.560.000 Adj. Price 327.600 255.450 230.100 458.250 466.706 475.318 484.089 219.375 333.645 339.802 316.875 324.112 330.093 1.560.000 1.560.000 # vehicles 1.089 1.089 1.089 1.089 1.089 1.089 1.089 1.089 1.089 1.089 1.089 150 200 149 150 12.628 Rev. (€ mn) 360.360 280.995 253.110 504.075 513.376 522.850 532.498 241.313 367.010 373.782 348.563 64.498 66.019 232.440 234.000 387.696
APPENDIX D-2: CAPEX & D&A ASSUMPTIONS
CAPEX & D&A assumptions 2018 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E OB CI 1.149 1.497 1.851 2.194 2.473 2.683 2.868 3.075 3.307 3.564 3.848 4.159 4.501 CapEx 637 706 760 750 720 730 793 861 935 1.015 1.103 1.197 1.300 Depreciation & Amortization (289) (352) (417) (470) (510) (545) (585) (629) (678) (732) (791) (856) (927) CB. CI 1.497 1.851 2.194 2.473 2.683 2.868 3.075 3.307 3.564 3.848 4.159 4.501 4.874 D&A rate 16,17% 15,98% 15,98% D&A/Capex 45,33% 49,86% 54,89% 62,72% 70,87% 74,72% 73,79% 73,07% 72,51% 72,08% 71,74% 71,48% 71,28% D&A/Revenues 8,44% 9,35% 9,90% 9,92% 9,91% 8,85% 8,78% 8,77% 8,74% 8,76% 8,78% 8,81% 8,84% Capex/Revenues 18,62% 18,75% 18,03% 15,82% 13,98% 11,84% 11,90% 12,00% 12,06% 12,15% 12,24% 12,32% 12,40% Capex/Auto Sales 22,59% 22,60% 21,60% 18,72% 16,55% 14,20%
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APPENDIX D-3: 3-STAGES DCF
FCFF 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E Norm. EBIT Adjusted 824 917 1.018 1.282 1.424 1.710 1.855 2.007 2.180 2.357 2.551 2.761 2.989 Less: Income tax expenses (88) (183) (275) (346) (385) (462) (501) (542) (589) (637) (689) (746) (807) NOPAT 736 734 743 936 1.040 1.248 1.354 1.465 1.591 1.721 1.862 2.016 2.182 Plus: D&A 289 352 417 470 510 545 585 629 678 732 791 856 927 Plus: Change in NWC 63 37 (10) 6 7 6 (14) 8 (4) (0) (0) (2) (3) Cash Flow from Operating Activities 1.041 1.323 1.150 1.412 1.557 1.799 1.925 2.102 2.265 2.453 2.653 2.870 3.106 Plus: CAPEX (637) (706) (760) (750) (720) (730) (793) (861) (935) (1.015) (1.103) (1.197) (1.300) FCFF 404 617 390 662 837 1.070 1.132 1.242 1.330 1.437 1.550 1.672 1.806 1.860 DF 0,940 0,883 0,829 0,779 0,732 0,688 0,646 0,607 0,570 0,536 0,503 0,503 growth % 69,8% 26,4% 27,7% 5,9% 9,7% 7,2% 8,0% 7,9% 7,9% 8,0% 3,0% Terminal Value 54.086 PV (FCFF) 366 584 694 833 829 854 860 873 884 896 909 27.226
Bridge - to - Equity - Exhibit 48 FCFF growth 2020E-2030E - Exhibit 49 BRIEDGE TO EQUITY VALUE WACC 6,44% 2.500 Terminal Growth 3,00% 2.000 Sum of PV (FCFF) 8.582 PV of Terminal Value 27.226 1.500 % Weight on EV 76,03%
EV 35.808 1.000 EV/EBITDA 2020E 24,95x Less Debt Industrial 337 500 Equity Vale 35.471 0 Number of shares out. 185,87 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E Price per share 190,84 Source: Team Estimates
APPENDIX D-4: RELATIVE VALUATION
Luxury Panel
EV/EBITDA EV/EBIT EV/SALES P/E EV/FCF PEG Company 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E
LVMH 14x 13x 12x 18x 16x 15x 4x 4x 3x 25x 23x 21x 28x 25x 20x 2x 2x 2x
Richemont 14x 13x 12x 20x 18x 16x 3x 3x 2x 25x 22x 20x 28x 25x 20x 2x 2x 2x
Kering 13x 11x 10x 16x 14x 13x 16x 14x 13x 21x 18x 17x 25x 21x 19x 2x 2x 2x
Hermes 24x 22x 21x 28x 26x 25x 10x 9x 8x 43x 40x 39x 42x 37x - 5x 4x 4x
Cucinelli 23x 21x - 31x 29x 26x 4x 4x 4x 41x 37x 34x 63x 56x 77x 5x 5x 4x
Prada 11x 18x 16x 35x 29x 24x 4x 3x 3x 41x 34x 27x 43x 41x - 3x 3x 2x
Average 17x 16x 14x 25x 22x 20x 7x 6x 6x 33x 29x 26x 38x 34x 34x 3x 3x 3x
Ferrari 25x 20x 19x 35x 28x 25x 8x 8x 7x 50x 39x 35x 72x 51x 30x 3x 3x 2x
Source: Factset, Team Estimates
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Automotive Panel
EV/EBITDA EV/EBIT EV/SALES P/E EV/FCF PEG Company 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E
PSA 2x 2x 2x 3x 3x 3x 0x 0x 0x 5x 5x 5x 32x 30x 41x 1x 1x 1x
Toyota 11x 10x 10x 15x 14x 14x 1x 1x 1x 9x 9x 9x 32x 30x 41x 1x 1x 1x
Tesla 35x 25x 18x 117x 47x 31x 5x 4x 3x 96x 55x 39x 101x 52x 37x 1x 1x 0x
Aston Martin 8x 5x 4x 46x 14x 10x 1x 1x 1x - 49x 13x 0x 0x 0x - 1x 0x
FCA 1x 1x 1x 3x 3x 2x 0x 0x 0x 5x 4x 4x 10x 10x 8x 0x 0x 0x
Daimler 12x 11x 11x 22x 19x 17x 1x 1x 1x 9x 7x 6x 99x 66x 310x 2x 2x 2x
VW 7x 6x 7x 14x 13x 14x 1x 1x 1x 6x 6x 6x 31x 28x 22x 1x 1x 1x
BMW 11x 10x 11x 17x 17x 17x 1x 1x 1x 7x 7x 7x 54x 47x 69x 0x 0x 0x
Ford 14x 13x 12x 24x 21x 22x 4x 3x 3x 41x 34x 27x 43x 41x - 3x 3x 2x
Average 11x 9x 8x 18x 13x 12x 2x 1x 1x 22x 20x 13x 45x 34x 66x 1x 1x 1x
Ferrari 25x 20x 19x 35x 28x 25x 8x 8x 7x 50x 39x 35x 72x 51x 30x 3x 3x 2x
Source: Factset, Team Estimates
APPENDIX E - CORPORATE GOVERNANCE
APPENDIX E-1: ENTITY STRUCTURE
Los Pollos Hermanos | 26 FERRARI N.V.
APPENDIX E-2: BOARD COMPOSITION
Source: Factset, Company Data
APPENDIX E-3: FERRARI VS PEERS
Tot. Members Indep. Dir. Avg. Age Avg. Tenue Ferrari 21 58% 55 8
Lamborghini 5 0% 71 12 30 Aston Martin Lagonda 21 42% 60 6 27
Tesla 18 78% 50 6 25 Volkswagen 42 0% 57 7 21 21 20 General Motors 52 82% 59 8 Automotive FCA 28 33% 57 4 15 12 Audi 29 0% 57 7 10 10 9 8 9 Renault 34 50% 56 6 8 Avg. exc. Ferrari 29 36% 58 7 5
LVMH 20 60% 61 13 0 Hermès 22 17% 52 7 Total Members Ind. Dir. Av g. Tenue
Luxury Kering 23 55% 53 6 Ferrari Automotive Luxury Prada 19 36% 60 10 Avg. exc. Ferrari 21 42% 57 9 Source: Factset, Company Data
Los Pollos Hermanos | 27