Citi Neutral On Ferrari

• Although Ferrari NV RACE shares declined 24.31 percent over the last three months, they appreciated more than 4 percent in premarket trade on January 20.
• Citi analysts initiated coverage of the company with a Neutral rating and price target of €37.
• While management believes that there is significant potential for brand expansion, the analysts say that predicting potential earnings from leveraging the brand was difficult due to lack of visibility until 2017.

The Citi analysts explained that despite the stock’s short trading history, it has not been flagged as High Risk since “the business is known to the market – it has been a disclosed subsidiary of Fiat Chrysler Automobiles NV FCAU for over a decade, during which time it has demonstrated stable margins.”

The analysts also noted that the company’s revenues have grown consistently, from €1.3 billion in 2005 to €2.8 billion in 2014.

With the production of LaFerrari having ended in 4Q15, a tough comparison is expected, given the sticker price of €1.2 million, which is almost five times the brand average.

“Countering this mix headwind, we see the V8/V12 mix improving slightly in favour of the latter with the help of the special edition 612 TdF,” the Citi report stated.

FX is also expected to be a tailwind, with the benefit expected to come through in the latter part of 2016.

“The Luxury sector has been burdened by a host of issues in the last three years – such as negative macro/geopolitical newsflow and subdued demand in mainland China. For Ferrari, on the other hand, it has largely been business as usual,” the report added.