Ferrari (NYSE:RACE) Has Strong Brand and Pricing Power
Ferrari has powerful intangible assets that include brand strength, intellectual property and pricing power.
The evidence of Ferrari’s economic strength stems from stable growth throughout economic cycles, substantial pricing power, consistent high profitability, and a brand that captures the imagination of many around the world, but a price that only HNWI’s (high-net-worth individuals) can afford.
Gross margins exceeding 50%, EBITDA margins in excess of 25%, and returns on invested capital in the upper teens to low 20’s are all metrics that are commensurate with luxury goods companies and that support Ferrari’s strong ratings.
According to the data, in Y 2014, a 1962 Ferrari 250 GTO set the record for most expensive car ever sold at auction through the traditional bidding process.
The winning bid was $38.1-M. The previous record was $30.0-M paid for a 1954 Mercedes-Benz W196R race car. Also, I am aware that a 1963 Ferrari 250 GTO holds the record for the most expensive car ever sold, carrying a $52.0-M price in a private treaty transaction. Further, there are rumors that higher prices for the 250GTO are looming.
The 250 GTO series is rare, with only 39 produced, it is also rare because it was made to be both a road car and a race car, thought not very comfortable as a daily driver.
Ferrari maintains this tradition today
The latest addition to the iconic line up is the FXX K, a race car based on the street-legal LaFerrari. The track-only FXX K has a price tag of $3-M, and the 40 HyperSupercars made sold out before the model was introduced to the public in December 2014 and before the 1st example was even produced.
The Ferrari FXX K was offered by Invitation Only to existing Ferrari owners. Approximately 70% of Ferrari’s 7,000 units in annual production are purchased by individuals who already own at least 1 Ferrari.
In the world of Formula One racing, Ferrari is synonymous with technologically advanced powertrains, a nearly insurmountable winning record, and a rich heritage that predates the inaugural Formula One World Drivers’ Championship in Y 1950.
Ferrari receives highest payment from from F1 just to participate.
Ferrari has won 16 constructors’ titles since the prize was initiated in Y 1958. These titles are awarded to the maker of the chassis and the engine that scored the most points during the F1 racing season. Points are awarded to the drivers and the vehicles that finish up to 90% of the race distance and place 10th or higher. The next closest to Ferrari are the Williams team with 9 constructors’ titles and McLaren with 8.
The Scuderia’s Formula One racing team’s notoriety and its technological innovation drive demand for the sale of Ferrari road cars.
The exclusivity of the on-road Supercars remains a strategic imperative for the iconic brand image of the company.
In Y 2014, there were 7,255 Ferraris produced to meet worldwide demand, but according to various media reports, wait times for certain models were still as long as 1 year and have been as long as 2 years. With such lengthy wait times on vehicles with high price tags, no discounts are available, and pricing power is strong.
Company management continually strives to balance exclusivity with the rising demand from a growing global pool of HNWI’s, and with customer satisfaction.
Ferrari’s CEO believes that the company can reasonably increase volume 4% per year through Y 2019 to 9,000 units while maintaining its supply/demand balance. Restricting capacity to a level that upholds pricing power and preserves exclusivity while sustaining customer satisfaction is evidence of pricing power.
Ferrari’s modern success is dependent on the strength of the brand image and Formula One-inspired advanced powertrain technology. The company is not expected to overproduce to the extent that its exclusivity might suffer.
Over the past 3 years, Ferrari has spent 15% of revenue on R&D, that is more than 2X that of other automotive companies.
R&D will expand and contract as product cycles run their course, analysts expect the company to continually spend a far greater percentage of revenue on R&D than other car companies to maintain a prestigious position as a Formula One racing powertrain innovator.
Ferrari’s clienti perceives The Scuderia (racing team) as a demonstration of powertrain technology, especially for Ferrari’s GT road cars.
RACE is a 5-Star stock trading at a 10% discount to 52 fair value, offering investors an attractive valuation in here.
|NYSE:RACE||46.66||4 August 2016||-0.23||46.71||47.04||46.38||493,800|
|HeffX-LTN Analysis for RACE:||Overall||Short||Intermediate||Long|
|Neutral (0.22)||Bullish (0.41)||Neutral (0.02)||Neutral (0.22)|