Rat race? Why you should not invest in the Ferrari IPO

This is more than a preeminent luxury brand, it is a cult steeped in the history of post-war Bella Italia's la dolce vita.

Ferrari will sell 10 per cent of its shares on the New York Stock Exchange in a initial public offering. Fiat Chrysler Automobiles, or FCA, will then own 80 per cent of Ferrari, with the rest owned by Piero, son of the legendary founder Enzo Ferrari. The Ferrari IPO is a milestone deal for FCA chairman Sergio Marchionne and a $10 billion post-IPO valuation for Ferrari will only gouse the value of its own shares in Milan as well as its stakes in Maserati and Alfa Romeo. The Street grapevine contends UBS is the global lead manager for the Ferrari deal with Bank of America Merrill Lynch and Santander Securities as joint book runner.
My take on the Ferrari IPO? This is more than a preeminent luxury brand, it is a cult steeped in the history of post-war Bella Italia's la dolce vita. After all, Ferrari has only produces 7,200 cars a year, making its prancing horse logo a global style icon. This is the reason you never see a Ferrari ad in the digital or print media (mass market media dilute, not enhance, luxury auto brands!). Formula One Grand Prix races are Ferraris truly calling card, given that the annual Monaco race can attract 450 million of the world's most affluent television views. The racing car engines are then used to market limited-edition Ferraris that trade at huge premiums in the vintage car markets. When second-hand Bentleys and Mercedes-Benz sedans are a dime a dozen, a pre-owned Ferrari car is both an aesthetic masterpiece but also an investment that appreciates, not depreciates, over time.
Yet this is the precise paradox at the heart of the Ferrari IPO. The Ferrari brand is diluted if it increases output or, mamma mia, horror of horrors, manufactures a "family SUV" like the Porsche Cayenne. If Ferrari increases its cars and output, as Marchionne wants, its luxury brand economics and trophy value falls. The real winner in the Ferrari IPO is Fiat Chrysler even though most Ferrari owners would rather die than own a Fiat (Fix It Again Tony!) or, God forbid, Chrysler.
The 2014 profit for Ferrari was only $290 million. This makes a $10 billion post-IPO valuation impossible for me to justify as a strategic holding other than as a pre-IPO "flip" if UBS is kind enough to allocate some shares to me. Note Ferrari shipped 7,255 cars in 2014, a fraction of Maserati's 36,500 and Porsche's 130,000. Never confuse a company's shares with the aesthetics of its product menu.
Investing in the Ferrari IPO only makes sense if Dubai investors believe FCA will boost output to 10,000 cars and launch new models. Low volume, exclusive luxury brands do not make the cash register ring or anchor a post IPO "growth stock" valuation of 34 times earnings. Ferrari's EPS growth rate in 2013-14 was only eight per cent. Thanks to the China/Russia/Gulf economic slump, I hear 2015 Ferrari shipments are actually down. Oops. Double oops. Is the Ferrari IPO molto bravo or molto chumpo? Do the math, ragazzi!
The real post-IPO owner of Ferrari will be Exor, FCA's largest shareholder and the family firm of the Agnelli clan, due to a dual voting structure that stinks to me. This makes it impossible for an activist investor like Bill Ackman to boost the value of Ferrari shares. Trust Italian corporate governance? Please read Suetonius's "Twelve Caesars" and Machiavelli's "Prince" once again.
I am forced to point out that the Ferrari team did not manage a single Grand Prix win last season. This is bad news since Formula One is the global marketing "engine" of this unique brand. Would I want to own a stock that can plunge if its racing team loses at Monte Carlo or Monza? No way, José or, in Italiano, eat tutti frutti Giovanni!
Ferrari was unquestionably an aesthetic miracle from Modena and Maranello with global cachet. Yet I will not buy the Ferrari IPO nor will I visit a Ferrari theme park rollercoaster to experience G-Force. Of course, the Ferrari IPO could well slip 20-30 per cent after it breaks syndicate. For now, it is far more profitable to bet on Volkswagen's sale of Porsche.
The real winner in the Ferrari IPO is FCA, the reason I have recommended its shares since 2013. Even if I diss the Ferrari IPO, I love Sebastian Vettel and Italia, the land of Mamma, Pasta and Discoteca!