Investment update | Should you catch a ride on Ferrari?

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Investment update | Should you catch a ride on Ferrari?

South African markets closed in the red yesterday, as investors assessed weak US economic data. Platinum miners, Anglo American Platinum, Northam Platinum and Impala Platinum plunged 9.5%, 5.5% and 2.8%, respectively.

US markets ended lower yesterday, as dismal US economic growth and persistent inflation dampened hopes that the US Federal Reserve would begin rate cuts this year. Consumer good company, Unilever gained 5.7%, after the company reported higher sales growth in 1Q24. On the other hand, insurance companies, Legal & General Group, Prudential and Admiral Group shed 6.4%, 2.9% and 2.6%, respectively.Asian markets are trading higher this morning. In Japan, printers and cameras company, Canon has advanced 3.3%. On the flipside, chemical company, Shin-Etsu Chemical has dropped 5.9%.

At 05:30 today, Brent prices rose 0.3% to trade at $89.32/bl. Yesterday, Brent prices rose 1.1% to settle at $89.01/bl, amid supply concerns in the Middle East as Israel stepped up airstrikes on Gaza's Rafah. In this regard, there is something called the Lindy effect. This states that the longer something has existed, the greater the likelihood it will remain in existence well into the future.This effect makes a business such as Ferrari extremely durable. In turn, durable businesses typically attract higher valuation multiples.One of the most crucial aspects to understanding the Ferrari business model is the tiny volume of about 13 500 cars the company produces yearly.

Ferrari’s production is almost sold out for the next two years. Sometimes, this leads to misperceptions that Ferrari is a no-volume growth model. However, Ferrari can grow its future production volumes , provided it does so in a careful, controlled manner while tapping into new target markets.

A regular or"range" Ferrari, as the company calls them, is likely to slowly depreciate in hard currency terms, albeit at a slower rate than an everyday car. However, the anecdotes of people making meaningful returns from owning a physical Ferrari are usually on a limited-edition model. The collector owned at least 15 Ferraris at the time, which were considered worth a combined value of over $100 million. He sent a deposit cheque of $1 million to the then-CEO of Ferrari, who declined his offer. The collector subsequently withdrew his legal case against Ferrari.

Owning a Ferrari gives one a membership to one of the most exclusive clubs in the world. The Ferrari Finali Mondiali track event, held in Imola in 2022, attracted 40 000 global fans. Ferrari is the only team to have competed in every Formula One season since the competition’s inception in 1950. Although it has been less successful in recent years in Formula One, it has been the most successful team over time.

The potential impact of the rise of electric vehicles on Ferrari is a hotly debated issue. The negative implications for Ferrari may be relatively limited, and there could be some positive effects. Ferrari and other small supercar brands have been lobbying to be allowed to adopt electric power more slowly than the mass brands. However, the global shift to EVs might even enhance the value of the Ferrari brand, similar to Apple and other sports watches, which enhance the value of ultra-high-end mechanical watches. In an ever-increasing EV world, Ferrari’s small number of ICE vehicles might be considered objects of increasingly rare beauty .

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