Ferrari is about to spread a lot more of its stock around.
The company sold 10 percent of its shares in a much-publicized IPO on the New York Stock Exchange in October. Piero Ferrari, son of Ferrari’s founder, also owns a 10-percent stake.
On Jan. 3, Fiat Chrysler’s remaining 80-percent stake will be spun off to its shareholders with those shares slated to begin trading on the Milan stock exchange the following day.
Fiat Chrysler investors will get one share of Ferrari for every 10 of Fiat Chrysler. The last day to buy Chrysler and get Ferrari stock is tomorrow, Dec. 30.
After the spinoff, the Agnelli family’s holding company, Exor, will own 24 percent of the company’s shares. Piero Ferrari will also continue to own 10 percent of the shares. But together they will control almost half of the voting rights.
Ferrari was one of the most high-profile IPOs of 2015 and one of only two in the fourth quarter (next to Atlassian) that was able to price above its proposed midpoint, but after a big splash in the first week of trading the stock dropped below its initial price of $52 and is now trading around $47.
Can Ferrari get back some of its lost luster? It’s going to be a tough sell.
The biggest problem is Street opinion has shifted since the IPO. The initial interest was overwhelmingly fueled by one sentiment: This is one of the great brand names of the world. It’s instantly recognizable. There are very few of these in the world, and there is no sign that the brand is tarnished in any way.
And it worked — for a while. Then investors and analysts started looking more closely at projected earnings rather than Ferrari’s more subjective “brand power.”
Analysts’ opinions reflected a wide range of opinions. Of the six who cover the stock in the United States, two have a buy on the shares, two rate the stock hold, and two have a sell rating. The Street has seized on the more skeptical commentary.
Evercore, for example, initiated coverage with a sell rating on Nov. 16, valuing the company at $40 per share, at a time it was trading around $51. The stock dropped about 4 percent that day.
Evercore struck at the very heart of the bull argument on Ferrari: that it should trade at multiples at least equal to other global luxury brands, and at a significant premium to other automotive companies.
“Ferrari is an automotive legend. However, that in itself should not justify a multiple which is 3x times that of the automotive industry average,” Cowen said.
Evercore argued the following:
1) Though Ferrari was the most profitable stand-alone auto maker, its margins are lower than its luxury peers.
2) Earnings growth is not outstanding, and as for top-line growth, “Aside from selling more cars it is difficult to envisage material revenue growth.”
3) While Ferrari does having “pricing power,” its products sell at a similar price to comparable products.
The stock never really recovered from this kind of assault, dropping from the low $50s to the mid $40s, where it sits today.
Now a large number of shares will come into the hands of Fiat Chrysler shareholders. What will they do with them?
Based on how the shares are trading, it appears that a lot of traders are betting it is a good idea to wait until Fiat’s shareholders have had the chance to sell their new Ferrari shares before diving in.
At some point, there may be a “smart entry point,” as one observer said to me. But we are not yet there.