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RACE ready?

12 Oct 2015 By Antony Currie

Sergio Marchionne is revving up Ferrari to the max in readiness for its initial public offering. The Fiat Chrysler boss has cranked up third-quarter margins at the iconic sports car firm, where he serves as chairman. That may help justify the near $10 billion market capitalization and bumper multiple the unit is angling for when it goes public. The need to keep the investment tank full and get the top line growing, though, may mean margins and the valuation fade.

Ferrari looks set to post an EBIT margin for the third quarter of nearly 20 percent, the company revealed in its latest IPO filing with the Securities and Exchange Commission on Friday. That’s a jump from just shy of 16 percent for the first six months of the year and drives the carmaker just past Porsche toward the territory of luxury merchants like Prada, Marchionne’s preferred benchmarks.

The preliminary figures also imply Ferrari is growing profit faster than sales. Revenue increased by around a tenth from the same period last year, while EBIT jumped something like 60 percent.

These are, though, just one quarter’s numbers. Annual EBITDA, based on the first nine months of this year, is running at around 750 million euros, requiring a one-third increase to hit Marchionne’s longer-term hopes. And an independent Ferrari will need to set up its own administrative operations, rather than relying on Fiat Chrysler’s. And it will have to keep its research and development investments up to snuff if it wants to keep up with rivals like Porsche that belong to deeper-pocketed parents.

Ferrari, as it will be called after the renaming of the IPO entity presently known as New Business Netherlands, deserves a higher multiple than the likes of BMW and Daimler. They currently trade at four and five times last year’s EBITDA, respectively. But at the midpoint of the price range Ferrari attached to its IPO on Friday, the company will be worth an astoundingly zippy 14 times last year’s EBITDA.

If the flattering third-quarter figures prove sustainable, that may seem less excessive. For now, though, the prancing horse’s valuation is heading way over the speed limit.


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