What you need to know about Ferrari before the IPO

The first public offering of the company is expected this Friday, its volume can be 1 billion dollars. Here's what an investor needs to know, to be fully armed.

Ferrari, which in July presented plans for the placement of about 10% shares on the New York Stock Exchange, can hold IPO already this week. 90% the automaker is owned by an Italian-American concern Fiat Chrysler Automobiles (NYSE: FCAU). The rest are owned by Piero Ferrari, son of the founder of the company.

IPO - part of a series of moves, designed to completely separate Ferrari from FCA, which plans to transfer the remaining 80% company securities to its shareholders. Ferrari itself will not receive any income from this - the sale of shares will be carried out by FCA.

Expected, that the process will be completed by mid-October. Swiss financial holding UBS will act as global coordinator and bookrunner along with Bank of America, Merrill Lynch и Santander Investment Securities. Here are seven facts, to know about Ferrari ahead of IPO.

1. The company relies heavily on its Formula 1 team, collectors and enthusiasts

The automaker is highly dependent on the success of its Formula 1 racing team - it is used to promote the brand instead of regular advertising, That, probably, would negatively affect his image.

Scuderia Ferrari Team won 222 Grand Prix racing, 16 Constructor cups and 15 World Champion Cups, making it the most successful team in the history of the competition. Formula 1 attracts about 425 million viewers worldwide, remaining one of the most popular sporting events of the year.

Research work, which is required for the design and manufacture of racing cars, helps Ferrari streamline the entire new model development process, including special series, limited editions and piece cars, sold at a particularly high price. The IPO draft states:

“If we fail to attract and retain talent, necessary to win international competitions, or allocate capital to fund successful racing events, the value of the Ferrari brand and the appeal of our cars and other luxury goods may suffer. ".

2. Low Volume Strategy May Limit Profits

Ferrari products attract customers to a large extent with their exclusivity, which the company supports, limiting the number of cars and models produced. The automaker deliberately keeps "waiting lists", to introduce ideas of luxury and exclusivity into customer service, allowing Ferrari to maintain its price model.

The company reported, what in 2014 year its profit was 265 million euros with revenue of 2,76 billion. In just a year, she delivered 7255 cars. This figure can be compared with 36,5 thousand. auto, sold last year by its rival Maserati, or with 120 thousand, which Porsche sold from January to August 2014 of the year. IPO project warns:

“The commitment to low production volumes and exclusivity is essential to our current marketing strategy., but limits the company's profitability and sales growth potential ".

3. Licensing is the key

Ferrari's prancing horse is a valuable company asset. From Ferrari World Abu Dhabi to watches and sportswear, Ferrari gets a lot of money from brand licensing agreements.

For the first three months 2015 the company has earned 109 million euros, or 17,6% чистой выручки, on sponsorship, brand advertising and sales, That, according to IPO data, include merchandising, licensing and royalty income. It's on 16,3% more, than during the same period in 2014 year. A large number of brand partnerships, including sunglasses manufacturer Oakley, Puma, Lego и Microsoft, could create additional risk for Ferrari, if the business of one of the partners does not go well. The draft says:

“Any deterioration in the image of such partners can have a negative impact on licensed products., shops and theme parks or the Ferrari brand itself ".

4. Engine revenue is linked to Maserati sales dynamics

IN 2011 year Maserati, another luxury brand Fiat Chrysler Automobiles, signed a contract with Ferrari for the supply 160 thousand. engines to 2020 of the year, planning to raise this figure to 275 thousand. by 2023. Separation of Ferrari from FCA will not affect the agreement in any way.

but, although Maserati plans to expand its lineup and sales, any decrease in the supply of the brand's vehicles will have a direct negative impact on Ferrari. During the first three months 2015 of the year Maserati engines brought Ferrari 54 million euros in net profit compared to 62 million euros for the same period in 2014. According to the Ferrari management, the decline was due to a decrease in the number of engines, sold by Maserati, on 15% due to the reduction in the supply of the brand's vehicles.

However, Previously, net income from Maserati engines rose steadily from 2012 to 2014 year. Total engine sales in the first three months 2015 the year was 10,3% from the company's revenue.

5. The company must win customers in emerging markets

Ferrari's growth strategy includes plans to expand into markets, That, according to the company, represent significant potential for growth. Among them are a number of emerging markets, where many high net worth individuals currently live, including China and other parts of Asia, as well as the Middle East. The company has no experience in these markets, And, Besides, it is not clear, are the current rates of economic growth sustainable. In some markets, growth may be hampered by mandatory government approvals and other regulatory restrictions, and changes in tax laws or declining interest in luxury goods can create additional risks. The project says:

“If plans for international expansion do not come true, our business and overall financial condition may be significantly adversely affected ".

6. Small free float could make stocks volatile

At the IPO, the company will place just 10% Papers, and that means, that only a small number of shares will be freely traded in the hands of a small number of shareholders. At the same time, FCA shareholders will own 80% the rest of the company, and Piero Ferrari - the last 10%. The combination of these factors can lead to instability in trading and prevent new shareholders from influencing management decisions..

7. Loyalty program can affect liquidity.

Also, the dynamics of shares may be negatively affected by the company's loyalty program., promising shareholder compensation, who are willing to hold papers for at least three years, additional shares with special voting rights. Shares with special voting rights cannot be traded and are transferable only in limited circumstances.

“This loyalty program was conceived to create a stable shareholder base, and vice versa, it is able to keep shareholders from bidding, who may be interested in participating in our loyalty program. In this way, the loyalty program will reduce the liquidity of our common shares and negatively affect their market price ".

Fiat Chrysler will highlight Ferrari to a separate company for the purpose of subsequent listing 10% shares of the manufacturer of supercars on the US and European exchanges. This will bring the FCA € 4.4-5.8 billion, which will reduce the carmaker's large-scale debts and raise funds for the investment program.