Ferrari NV has sparkled on its first day of trading Wednesday as the luxury sports car maker celebrated the first step toward becoming an independent company.
The stock traded as high as $61, or 17% above the $52-a-share price of the initial public offering that raised $893 million for parent company Fiat Chrysler Automobiles NV.
In late morning trading in New York, the stock settled down about 8% above the IPO price, giving the company a market value of $10.6 billion.
About 9% of Ferrari is publicly traded, creating a scarcity premium that is helping sustain the share price, according to investors and analysts. They nevertheless cheered the success of Sergio Marchionne, chief executive of Fiat Chrysler and chairman of Ferrari, in convincing investors that when it comes to valuations Ferrari has more in common with luxury goods makers like Hermès International SCA. than high-end car makers like BMW AG.
“Before today the big question was whether Ferrari should be valued as a luxury company and the answer we got is yes,” said Martino De Ambroggi, an analyst with Equita in Milan.
Red Ferraris Wednesday lined the street in front of the New York Stock Exchange where Mr. Marchionne rang the opening bell without deviating from his trademark black sweater over a collar shirt. His one concession to adjusting his wardrobe for the occasion was a small Ferrari pin with a yellow backdrop and the black prancing horse that has become the symbol of one of the world’s most-recognizable brands.
John Elkann, Fiat Chrysler’s chairman and a scion of the Agnelli family that founded Fiat more than a century ago, flanked Mr. Marchionne at the bell ringing ceremony sporting a red sweater under the jacket of his three-piece suit.
Mr. Marchionne and Mr. Elkann, whose family investment company owns 29% of Fiat Chrysler, had much to celebrate as the car company’s shares have almost doubled since the Ferrari IPO announcement surprised markets a year ago.
Ferrari trades on the New York Stock Exchange under the symbol “RACE”, which Mr. Marchionne said was his second choice after the unavailable “RED,” the color most associated with Ferrari race cars.
Ferrari’s free float could rise 1 percentage point to 10% if the investment banks that led the IPO decide to sell additional shares in the coming month. Fiat Chrysler still holds 80% of Ferrari and 10% is owned by Piero Ferrari, son of the company’s founder.
Fiat Chrysler plans to spin off to its shareholders its remaining holding in Ferrari at the beginning of next year, a move that will greatly increase the amount of stock that is publicly traded.
As part of the listing and spinoff of Ferrari, Fiat Chrysler took a cash payment from its unit, money that will be used either to lower debt or fund an ambitious EUR48-billion five-year investment plan that includes the introduction of several dozen new cars across the group’s brand lineup that, in addition to Ferrari, includes Chrysler, Jeep, Ram, Fiat and Alfa Romeo.
While the debt maneuvers engineered by Mr. Marchionne, who many people who have worked with him describe as being closer to an investment banker than a car executive, ballooned Ferrari’s debt to EUR2.3 billion compared with EUR510 million at the end of last year, analysts said the amount is sustainable.
Mr. De Ambroggi said the debt won’t compromise future investments in new models or Ferrari’s ability to pay a small dividend in coming years.
For Fiat Chrysler, which traded lower on Wednesday, the long-term effect of losing Ferrari are harder to pin down.
“On the one hand, the one-off cash inflow will decrease net debt and net leverage–a positive aspect–while on the other hand FCA will not benefit from Ferrari’s stable and solid earnings anymore in the future,” said Emmanuel Bulle, a senior director at Fitch Ratings.
Ferrari has built its brand’s prestige around limiting annual production, which has averaged about 7,000 vehicles in recent years. In its IPO prospectus, Ferrari said it would lift production over coming years to reach 9,000 in 2019.
“We need to grow the demand side before we increase the supply side,” said Mr. Marchionne in an interview with CNBC television. “It’s a very tight walk.”
Last year, Mr. Marchionne said Ferrari could increase production to 10,000 cars a year without damaging its standing as one of the most exclusive car manufacturers in the world. He plans to increase sales in markets such as China while keeping them largely steady in mature markets like the U.S. and Europe where buyers often sit on waiting lists for a year before they get possession of a vehicle.
Source: MarketWatch
