Revenues for the year 2017 stood at Euro 3.4 b increasing 10% annually over the last four years. Over the same period, operating profits increased by 20% to Euro 775 m. Earnings increased by 22% to Euro 535 m; so did earnings per share. Operating margins were 22.68% (2017) compared to 15.59% (2013). Very high return on equity. Average free cash flows to firm were Euro 300 m. Not a bad performance for an auto business having sold only 8,398 cars in 2017.
Sports V8 were in maximum demand.
Ferrari sells a fair bit of engines too.
Now, how much should this firm be valued? It is currently priced by the market at $121.99 per share. That is $23 b or say, Euro 20 b in market value for the equity. Compare that to free cash flows to firm, and then consider Euro 1.8 b of debt; and there is cash of Euro 648 m.
The market price appears a bit pricey. If that was the case, the equity was available for half the current price sometime in 2017 itself (its low price). In 2016, the stock sold at $32 per share when it was low. For someone who bought at that price, the increase in market value was nearly 4 times within a year. There is money to be made in every stock if you are good at market timing. Alas, isn't that difficult? Who knew it would be as low as $32 and as high as $122? Someone said it once, it is very hard to predict, especially the future.
Ferrari is a great franchise. But then every good business isn't a good buy; and at times, even a bad business can be a screaming buy. The game is between value and price; always.
The board is considering a share buyback program.
The number of shares outstanding (189 m) has not changed since 2013; and in February 2018, the Euro 100 m buyback initiative was announced by the company. In 2018, Ferrari bought 190,600 shares at $119.82 per share.
The management obviously considers that price is a bargain compared to its intrinsic worth.
To justify a buyback, two things have to fall in place: Excess cash, and price paid much lower than its value. Only time will tell whether $120 is a bargain. In the mean time, driving new Ferrari down the street is definitely red, faster than wind, passionate as sin.
The management obviously considers that price is a bargain compared to its intrinsic worth.
To justify a buyback, two things have to fall in place: Excess cash, and price paid much lower than its value. Only time will tell whether $120 is a bargain. In the mean time, driving new Ferrari down the street is definitely red, faster than wind, passionate as sin.
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