Memorandum: Ferrari IPO Valuation

To: Senior Partner, Delphine Resegotti, BofA Merrill Lynch

From: Belfort, Analyst

Date: 28/01/2025

Subject: Valuation of Ferrari S.p.A. in the Context of its IPO

Introduction and objective

The renowned Italian luxury sports car maker Ferrari S.p.A. is scheduled to make its NYSE
debut with the ticker "RACE." An important turning point in Ferrari's history is its IPO, which
saw the company go from being a Fiat Chrysler Automobiles (FCA) subsidiary to an
independently listed business. Investors have a chance to learn about a premium carmaker
with high profit margins and international reach thanks to Ferrari's well-known brand, which is
recognized for its exclusivity, exceptional performance, and outstanding heritage in motorsport.
The valuation of Ferrari has been an ongoing discussion among experts and investors as FCA
intends to sell 10% of Ferrari's shares through this IPO. In order to help pricing and strategic
decision-making, this memorandum offers a well-supported value range for Ferrari by using
both similar multiples valuation and Discounted Cash Flow (DCF) analysis.

This memorandum provides a valuation analysis for Ferrari S.p.A. in preparation for its Initial
Public Offering (IPO). It suggests an IPO pricing plan that strikes a compromise between
guaranteeing positive post-IPO trading performance and optimizing profits for FCA.
In order to help pricing, this document offers a well-supported value range for Ferrari by using
both Multiples Valuation and Discounted Cash Flow (DCF) analysis. This evaluation will help
with well-informed decision-making when Ferrari joins the public market.

Valuation Methods

To determine the value of the IPO price of Ferrari, we use two different approaches, i.e. the
DCF (discounted cash flow) approach, and the multiples approach.

Discounted cash flow

Using the DCF method, we calculated Ferrari’s enterprise value (EV), and subsequently, its
equity value per share.

To calculate this equity value and share price, we first projected its Free Cash Flows (FCF)
over a five-year period. This was done using the operating profit (EBIT), adjusted for
depreciation and amortization, changes in net working capital (NWC), and capital expenditures
(CapEx). Since operating profit (EBIT) is already net of depreciation and amortization, we did
not subtract these expenses again when calculating FCF. However, because they are non-
cash expenses, we added them back to NOPAT to reflect the true cash-generating ability of
the business. To maintain consistency in our projections, we also calculated the 2020 values
of Net Working Capital (NWC), Net PP&E & Intangible Assets, and Depreciation & Amortization
by applying the terminal growth rate of 2% to their respective 2019 values. This approach
ensured that Ferrari’s balance sheet components grew in line with its steady-state
assumptions, aligning with the methodology used for forecasting FCF and terminal value.

For the terminal value, we assumed a long-term growth rate of 2%, reflecting Ferrari's long-
term growth potential and steady-state expansion, while also applying the discount rate of 5%.
This resulted in a terminal value of €12,123M. Discounting both the projected FCFs and the
terminal value using a 5% discount rate (cost of capital), we arrived at an Enterprise Value
(EV) of €10,402M. Finally, to determine the equity value, we subtracted Ferrari’s forecasted
debt value for 2025 (€2,267M), resulting in an equity value of €8,135M. This translates to a
share price of €43.04 per share (€), or $48.96 per share (USD).

Figure 1. DCF Valuation

To evaluate the robustness of our valuation, we conducted a sensitivity analysis by varying

the discount rate and terminal growth rate in 0.5% increments within the ranges of 4%-6.5%
and 1%-3%, respectively. This analysis revealed that the share price fluctuates significantly,
ranging from $37.67 to $71.54 depending on the assumptions applied. These results highlight
how Ferrari’s valuation is highly sensitive to changes in the discount rate and terminal growth
rate, reflecting the importance of these variables in the DCF model. While our base case value
of $48.96/share provides a solid benchmark, external factors such as market conditions and
investor sentiment could shift the valuation higher or lower within the calculated range,
emphasizing the need to account for uncertainty in key assumptions.

Figure 2. Sensitivity Analysis

Multiple valuation

For market multiple valuation, the value of Ferrari was calculated using EV/EBITDA multiple,
considering EBITDA better captures the company’s core business operation since it eliminates
differences in tax structures, debt levels, and depreciation policies across companies.
When calculating EV/EBITDA multiple for auto manufacturers, Tesla’s multiple was excluded
from the calculation because of its highly irrelevant value.
The calculations and data from Exhibit 6 of the case indicate that the average EBITDA multiple
for luxury brands is 13.96, compared to 9.83 for auto manufacturers. We believe that Ferrari is
better suited to be valued as a luxury brand rather than a traditional car manufacturer since
Ferrari has consistently positioned itself as an exclusive luxury brand, evident through its
waitlists, invitation-only clubs and events, and limited production strategy. Ferrari's customers
recognize and value this exclusivity beyond just the cars themselves. Given these factors, the
13.96 EBITDA multiple is applied in Ferrari’s enterprise valuation, as demonstrated in the
calculations below (Figure 3). Also, 2014 EBITDA was used instead of the 2015 value because
the comparable multiples calculated from the data in Exhibit 6 are all based on 2014 EBITDA
values paired with October 2015 equity values. In the end, we reached a value of $44.04 per
share.

Figure 3. Multiple Valuation

3. Valuation Robustness Analysis

We believe that our valuation results can be considered weak due to several limiting factors
and assumptions. First, the DCF method relies rather heavily on projected cash flows and
terminal growth rates, both of which are based on subjective inputs. Also, we assume the
growth rate to be 2%, which is much lower than the average projected growth rates for both
the regular auto manufacturers and luxury brands. Additionally, the sensitivity analysis shows
significant variability in valuation with slight changes to key inputs. Finally, external factors
such as market sentiment, macroeconomic conditions, and Ferrari’s brand strength—which
plays a critical role in IPO pricing—are not directly factored into the model. As a result,
although the calculations provide us with a starting point, they may not fully reflect Ferrari’s
true value.

4. Recommendations

Recommendation for Ferrari’s IPO Pricing: We propose a pricing range of €45-50/share,

slightly above the base DCF valuation (€43.04/share) to reflect the following considerations.

Ferrari’s strong global brand presence, particularly in the luxury automotive segment, justifies
a slightly premium valuation compared to other automakers. Additionally, IPOs often attract an
extra market premium due to investor optimism and the scarcity of high-value market
opportunities. While the 2% terminal growth rate used in the DCF model is conservative,
Ferrari’s long-term growth trajectory, bolstered by increasing demand for luxury goods and
expansion into new geographical markets, as highlighted in the case study—could support a
higher growth assumption. Furthermore, Ferrari’s consistent profitability underscores its ability
to sustain long-term value, reinforcing confidence in the company’s financial stability and
growth potential.