Behind The Numbers – Ferrari (RACE)

Ferrari (RACE) was a W/E Research write-up way back on May 21st where the time duration provided was simply “Buy and Hold.” The bull case was reiterated again in the September 14th Webinar. As shown in First Read this morning, the stock is catching an upgrade from Barclays where they are going to Overweight from Equal Weight. Analyst Henning Cosman said the company reported a “very strong” Q3, leaving fiscal 2023 guidance looking “undemanding” despite another raise. The firm says Ferrari’s commentary on price, mix, personalization and order book bode well for 2024 through 2026.

Let’s go into a bit more detail following the company’s Q3 results last Thursday where they reported:

-EPS of €1.82 vs €1.59 estimate and €1.23 Last Year – Beat
-Revenue of €EUR 1.54B vs €1.47B estimate and €1.25B Last Year – Beat
-Adj. EBITDA of €595M vs €566M estimate – Beat
-FY Revenue Guidance of €5.9B vs. prior guidance of €5.8B and €5.8N estimate – Beat
-Adj. EBITDA Guidance of €2.25B vs. prior guidance of €2.19B – €2.22B and €2.23B estimate – Beat

Management acknowledged that they have all key metrics showing double-digit growth versus the previous year. For the first time, the company’s revenues were above €1.5B, which was up 24% versus the prior year. All geographic regions grew in the first 9 months. Ferrari reported Q3 shipments of 3,459 units, an increase of nearly 9%. EBITDA of about €600M and EBIT over €420B were both up about 40%, driven by product mix and personalization. Speaking of personalization, the company’s Cars & Spare Parts Revenue grew +29.1%. “The increase in cars and spare parts was driven by higher volumes, a richer product and country mix, as well as stronger personalizations and pricing.” Personalizations further increased in absolute value in the quarter and reached approximately 19% in proportion to revenues from cars and spare parts mainly driven by paint, leverage and the use of carbon. Sponsorship, commercial and brand reflected higher sponsorships including Formula 1 and World Endurance Championship racing activities and higher commercial revenues as a result of the better prior year Formula 1 ranking. Lastly, Engines revenue declined, which was in-line due to the reduction of supplies to Maserati.

CEO Benedetto Vigna and CFO Antonio Piccon, in their prepared remarks, would call out several tailwinds:

“The vitality of our business is also confirmed by the current order book, which remains at the highest levels across all geographies and models, covering the entire 2025. And before you ask, I can already tell you that in the next few months we do not expect the order book to continue to grow since all models are substantially sold out, but one: the Roma Spider.”

“And again, anticipating one of your question, I would like to underline that during the dealer annual meeting of last week, I specifically spent time with our dealers in Mainland China, which confirmed that the traction of the brand continues to be very strong.”

“We are also making progress on the future product pipeline. All projects are on track as planned. And in particular, I’m excited about the full electric Ferrari, now a prototype in testing mode. You have to be patient. And as you know, this is part of the desirability of our brand. I’m also very proud of how the e-building is progressing towards the inauguration expected in June next year.”

“In the quarter, we continued to serve the highest order book that Benedetto commented and we are all very proud of. Backed by the above shipments in the quarter, reflected our volume and product allocation strategy for the year and by geography. Thus, EMEA and Americas were up versus the prior year. Deliveries in Mainland China, Hong Kong and Taiwan decreased by a few turns and rest of APAC was substantially flat year-over-year. All regions are up in the first 9 months with Americas, benefiting from a larger share of allocations year-over-year and visibly supporting our margins. The increase in shipments was driven by the 296 and SF90 families together with 812 Competizione A and the Purosangue, which were in their ramp-up phase.”

With regards to long-term implications, RBC Capital would say:

“Our modelling showcases that long term, Ferrari should see over 15% EBIT growth per year from 2022-2030 coming from deliveries growing 5%/year and price/car growing by 5%/year. From 2022-2025, the Purosangue should account for the majority of incremental volumes, enabling Ferrari to reach its 15k/year Maranello plant capacity limit. Beyond 2025, we expect new fully electric Ferraris (BEVs) to account for the majority of incremental volumes to get to 21k/year by 2030. Regarding pricing, 2023 should be boosted by 15% price/mix growth helped by the Daytona/Purosangue launches and beyond 2023, Ferrari should see at least 3% pricing growth per year, consistent with company policy and our expectations that the BEVs will be priced above historical levels.”