Italy’s iconic car maker Ferrari NYSE:RACE made sporting headlines yesterday after it revealed that it signed up Formula 1 champion Lewis Hamilton from next year. The seven-time world champion is leaving Mercedes Benz [FRA:MBG] with whose racing team he won six out of seven championships to finish his racing career driving for Ferrari.
While the glitz and glam of the sporting world grabbed most of the headlines, the underlying financials released by the company on the same day were equally impressive.
Ferrari’s profits broke the €1 billion mark for the first time as the company increased its income 34% on the year, while net revenue rose to €5.97bn, up 17.2%. The car maker’s adjusted EBITDA increased by 28.5% to € 2.3bn and its adjusted EBITDA margin of 38.2%. The company also pays a quarterly dividend of €0.45
The numbers exceeded the company’s relatively restrained earnings guidance and shares rose 9% on the day. Its market cap increased €7 billion helping Ferrari overtake Enel as the company with the highest market cap traded in Milan.
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The secret to Ferrari’s success
What is so impressive about Ferrari is that over the last five years, that is, throughout Covid, Brexit, the war in Ukraine, rising interest rates and struggling stock markets, the company’s share price increased by over 200%, leaving other car makers in the dust.
To start with Ferraris are sold at a premium compared with BMWs and Mercedes Benz, at a price point of between €300,000 and €450,000 per car. Last year’s average car price rose to €397,000, the highest ever.
Ferrari has kept itself out of the race to make electric cars and has consequently avoided some of the supply chain and raw material issues other car makers have had to face. The luxury car maker t is getting ready to launch its first electric car next year but intends to keep most of its focus on its traditional engine.
The bigger earners for the company are bespoke cars, cars with personalised seats, music fixtures and signature design, and personalisation, which now makes almost 20% of the company’s income. And finally, a large part of the hefty margin comes from merchandise.
Ferrari’s sales strategy, which is to limit the number of cars it sells and the focus on bespoke cars, is closer to luxury brands like Louis Vuitton and Dior than other car makers. This explains why the stock market values other car makers at between 2.5x and 5x times their annual earnings and yet luxury goods, and Ferrari, are traded at over 20x of their earnings.
Like Louis Vuitton and Dior, expanding sales in the US and China play a large part in the company’s sales growth. Where Ferrari differs from other car makers is that almost half of its income comes not from cars but from merchandise.
Rosy outlook for Ferrari in 2024
There are no signs that the company is about to slow down. Ferrari’s order book is full for this year and across 2024 giving the company confidence to forecast an increase in revenue and core earnings in 2024. Ferrari estimates that it will be able to continue to increase its net revenues to €6.4 billion, adjusted EBITDA to at least €2.45 billion and boost diluted earnings per share to €7.50 from €6.9 in 2023.
There are forecasts for very slow growth, if any, in Europe this year. If these prove correct, Ferrari, and a number of other European companies selling to a high end clientele, and selling into the US and China, will be the way to avoid the doldrums.
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