Ferrari priced its initial public offering at $52 a share after the market close on Tuesday, and the IPO is “oversubscribed.” The company starts trading today at 9.30A. As part of the planned IPO, the carmaker is floating about 17.18 million shares to the public, representing about 9 percent of the company.
The Ferrari family owns 10 percent; Fiat Chrysler owns the remaining 90 percent of the company. Fiat Chrysler’s stake will be reduced to 80 percent as a result of the IPO. Ferrari’s ticker on the NYSE is RACE.
Ferrari produces around 7,300 cars per year mostly targeted for Europe and U.S. The low production rate keeps the image of the company intact while generating huge pent-up demand. However, the downside is that unusually low production (owners typically wait for a year to get their car) raises a checkered flag on profits. In contrast, BMW, Audi, and Porsche have seen their profits rise because of double digit growth in their production over the past decade.
In its initial-offering filings, Ferrari now claims that it intends to expand its production to 9,000 cars by 2019. There are some economic benefits to keeping their production under 9,000; the company is exempt from U.S. fuel-economy rules so long as it sells fewer than 10,000 cars a year globally. Exceeding the ceiling could impact the performance of its high-powered engines.
• Ferrari spends roughly 20% of revenue a year on research and development (global industry average is around 5%)
• Between 2010 and 2014, Ferrari’s revenues increased by about 50%
• During the same period, operating profits rose 32%
• Its operating margins are around 14% to 16%.
First Trading Day
What will happen when RACE revs up its engine and starts trading at 9.30A today? My guess is that, like most IPOs, we will observe a run up of about 20-50%. So don’t be surprised if the price jumps to around $75 on the first day.
However, it is hard to tell what will happen in the long run but this stock is worth watching. If you don’t own one already, your chance to own a Ferrari finally arrives today. See you at the finish line.
October 21, 1.34Aby