(News Bulletin 247) – The automobile manufacturer, sometimes compared to the luxury sector on the stock market, was a great source of satisfaction last year for investors. But some analysts consider that its potential now seems limited.

The prancing horse appeared more fiery than ever on the stock market last year. Ferrari shares rose by just over 42% in 2023. Only three major car manufacturers, namely Tesla (+101.7%), Stellantis (+59.3%) and Toyota (+43%), did better.

Ferrari has raised its profit forecasts for the 2023 financial year several times, with a new record publication in the third quarter. The group has notably benefited from the rise in power of its recent models, Ferrari citing the 812 Competizione A, a convertible variant of the 812 Competizione, a sports vehicle, as well as the Purosangue, the first SUV of the Italian brand.

The performance of the Italian group is all the more remarkable given that luxury, a sector to which Ferrari is often equated, had a mixed year in 2023, with LVMH gaining only 7.9% last year, much less than the CAC 40 (+16.5%).

“Unlike most luxury groups, Ferrari does not have an aspirational component (in short, younger and less affluent customers than traditional buyers of luxury items, Editor’s note) and, as such, should be much more defensive” on the stock market, underlined Royal Bank of Canada in August.

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Time to take your profits?

Still, like many stocks which have performed well in 2023, the question of the Italian group’s potential arises, even if the manufacturer has been doing well since January 1 (+1.9%). Last week, the independent research firm AlphaValue initiated its coverage on Ferrari with a “lighten” advice and a price target of 305 euros.

The financial intermediary recognizes the strengths of the transalpine company. Ferrari has “created over time a brand synonymous with wealth, exclusivity, design and performance”, underlines AlphaValue.

“This provides the group with the benefit of highly inelastic demand, enabling it to set among the highest prices in the automotive industry and post revenue and operating profit per car of 328,000 euros and 92,000 euros (!), respectively, in the 2022 financial year,” he continues. The company’s marketing strategy of deliberately limiting the number of cars produced has helped cultivate brand equity unprecedented in the industry, the research firm notes.

More than volumes, the company has a growth driver in the customization (i.e. personalization) of the vehicles it sells to its customers. According to AlphaValue, these customization activities, which have better margins than others, represent around 15% of the company’s revenues, which intends to increase this share to 17% in the medium term. “This strategy will become even more crucial when Ferrari reaches its maximum annual production capacity estimated at around 15,000 units (compared to around 14,000 planned in 2023), as the group is unlikely to increase its production capacities and will therefore have to focus on other activities to increase its turnover”, continues AlphaValue.

However, investors may be a little too optimistic. The research firm notes that the market anticipates results well above Ferrari’s medium-term objectives, i.e. revenues of more than 6.7 billion euros in 2026 as well as a gross profit operating income (Ebitda) adjusted from 2.5 billion to 2.7 billion euros for a corresponding margin of 38% to 40% over the same horizon. “From our point of view this could be a good time to take profits,” concludes AlphaValue.

Hermès as comparable

This observation is in line with that made last month by HSBC. The Sino-British bank said it admired Ferrari but “this admiration is widely shared and integrated into the course”, she explained.

With demand clearly exceeding supply, Ferrari does not suffer the volatility of other car manufacturers linked to volumes and model changes. The other side of the coin: “lower volatility implies greater certainty of results, including from the point of view of forecasts, and it therefore becomes difficult to surprise (the consensus) quarter after quarter”, pointed out HSBC. The bank also explained that the consensus for 2024 already seemed demanding to it, anticipating an adjusted Ebitda margin of 40.1%, more than the upper limit of the group’s forecast for 2026.

At the same time, the establishment noted that Ferrari’s stock market multiples had moved significantly closer to those of Hermès, the saddler being considered by HSBC but also by AlphaValue as Ferrari’s closest comparable. Its discount compared to the luxury group fell from 22% at the start of 2023 to around 5% in mid-December. As a result, HSBC deemed the valuation “fair” and had downgraded its advice to “hold” from “buy” previously.

Conversely, Royal Bank of Canada believes that the stock still has potential, with a price target of 344 euros compared to a share currently around 311 euros. The Canadian bank expects the group’s operating profit to increase by 15% per year between 2022 and 2030, with 705 more units sold in 2024, thanks to the rise of the Purosangue.