Financial Valuation of Ferrari S.p.A

Bosko Kovacevic

Student thesis: Master thesis


Ferrari’s recent initial public offering (IPO) valued the company at $ 9.82 billion placing its stock at the top end of the prior IPO announced range ($48-52). Becoming the sole publicly traded sports luxury car manufacturer that operates within a moderately growing industry, Ferrari’s story lured numerous analysts to argue about reasons behind such a high valuation and hence questioning its market value. This thesis uses such a hot topic to further analyze and challenge Ferrari’s fair value relative to market expectations.
In order to examine Ferrari’s fair value, two valuation methods have been applied: the residual operating income (ReOI) model and the relative valuation method. The focal emphasis was put on the first technique due to its pure equity concept, ultimately leading to more precise valuations. In order to define key value drivers, a profound financial and strategic analysis have been performed. Additionally, this method is built upon a financial and strategic analysis to acquire more credibility before implementing a relative method that is constructed on peer-to-peer valuation. The carried out valuation method based on ReOI indicates that the fair value of Ferrari’s common equity is 13.3% higher than the market value of Ferrari’s common equity from the first week average in July 2016. Prospect of Ferrari’s future value are subaltern to: 1) top management’s decision to extend the growth strategy above its small vehicle manufacture (SVM) threshold, 2) leveraging the full brand revenue line potential and 3) the growth of high net worth individuals (HNWI) in emerging markets.
In the relative valuation method, the unleveraged EV/EBITDA multiple has been compared to different peer groups and subsequent outcomes have been derived: 1) applying the peer group of solely high-end premium car producers values Ferrari’s stock at € 10 in 2016 2) utilizing the enlarged peer group of high- end premium car producers and luxury good brands determines Ferrari’s stock value at € 31.2 in 2016 3) using only the luxury peers estimated Ferrari’s value to be € 41.67 in 2016. Comparing to the market’s average of Ferrari’s value in the first week of July, the peer group of solely high end premium manufacturers and the enlarged peer group of both premium car producers and luxury brands indicate significant overvaluation of Ferrari’s stock by ~73% and ~14% respectively. On the other hand, the pure luxury goods’ peer group points toward the undervaluation of Ferrari’s stock by 14% correspondingly to outcomes from ReOI method. To that end, the relative valuation method designates that Ferrari is more comparable to luxury goods players than to automotive players.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2016
Number of pages110