Ferrari needs better strategy to attract more investors

By Money Times

Oct 13, 2015 09:47 PM EDT

The Italian luxury sports car maker, Ferrari will debut on Wall Street soon and it is expected to create a buzz for its IPO. However, investors are concerned with the long-term return from the company as the company is known for its product capped and high research cost.

According to Reuters, Ferrari market capitalization could reach as high as $12.1 billion after the company separated from its main company the Fiat Chrysler Automobile. This after the main company announced that it will offer 10 percent of its stake in Ferrari as high as $52 per share.

However, the lucrative IPO return alone will not attract many investors according to Arndt Ellinghorst, Evercore ISI analyst. He said in a statement according to Channel News Asia "Whilst we agree Ferrari has the potential to grow sales from about 7,000 units to about 10,000 relatively easily in the next few years, longer-term we question whether it really has better unit growth potential than a company like BMW."

The analyst views seem to be opposite from what Ferrari Chairman, Sergio Marchionne was expecting. He is hoping that investors will treat the company's stock like the brand itself which reflect the luxury and exclusivity of Ferrari. He said that the company is worth at least 10 billion euros.

Besides that, analysts are also worried that the declining company's profit will continue and affecting the share price. Currently, it is operating at 14 percent operating margin and with the increase of money spends on new technology research, the profit margin is expected to decrease further.

Based on a review by Ellinghorst, the company is currently valued at 3.8 times its estimated 2015 sales and 14 times earning before interest, tax, depreciation, and amortization).

Ahead of the initial public offering, the company had announced that it will revamp its production by 30 percent by 2019 as reported by CNBC. This means that company will increase its production capped from 7,000 to 9,000 annually.

The company is hoping that the strategy will boost its profit after the IPO and will still able to maintain the exclusivity of the brand. Since the waiting list for a certain Ferrari could stretch to more than a year, the move also will allow more collectors to obtain the car and further increase its market domination for the luxury sports car.

Besides the car, the company also plans to tap into other sectors including sportswear, accessories and electronic starting on the second quarter of 2016.

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