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Demerit points

2 Feb 2016 By Olaf Storbeck

Just a month after spinning out of Fiat Chrysler Automobiles, shareholders in Ferrari have collided with reality. The stock fell around 13 percent on Feb. 2 after boss Sergio Marchionne predicted weak growth for 2016. Ferrari is still a great brand, but investors were wrong to believe Marchionne’s luxury spin.

Despite falling almost a third so far this year, Ferrari shares look expensive: they now trade on a 2016 price-to-earnings multiple of more than 19, more than twice German premium carmakers Daimler and BMW, Eikon data show. Such a rating might befit a well-established luxury goods company, but Ferrari isn’t that. At 16.6 percent of sales, its operating profit margin adjusted for one-offs is decent, but not much better than Volkswagen’s Porsche brand – which has six times the revenue.

Faltering top-line growth is what really highlights Marchionne’s earlier hubris and investors’ excessive credulity. Porsche, by way of comparison, sold 19 percent more vehicles in 2015 than the year before – three times the increase Ferrari managed. And for 2016, the Italian group is expecting volume growth of just around three percent. China is partly to blame: shipments dropped by 22 percent and the crumpling of the Chinese stock market definitely did not help.

The chairman thinks the number of Ferraris he can sell in a year could potentially rise by 30 percent to 10,000. That sounds rich. Porsche’s stellar growth shows that a brand can be successfully expanded. But it will be tough to balance exclusivity with expansion. The premium pricing of the cars, which start at $188,425 according to TrueCar data, hinges on their scarcity as well as relatively high second-hand values.

Even in a best case scenario, this requires a lot of time, investment and careful management – and more importantly, a lower valuation. Marchionne is one of the industry’s most accomplished executives, but pitching Ferrari as a luxury stock leaves some points on his license.


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