Ferrari IPO: Fiat (NYSE: FCAU) Could Be the Biggest Winner in Ferrari IPO

Ferrari IPOFiat-Chrysler Automobiles NV Could Be the Biggest Winner in Ferrari IPO

Ferrari N.V. (NYSE:RACE) will make its initial public offering (IPO) on the New York Stock Exchange today (October 21st), with owner Fiat-Chrysler Automobiles N.V. (NYSE:FCAU) hoping it will burst out of the starting block. But will a Ferrari IPO be a success or will Fiat stockholders be disappointed? Let’s dig into the numbers.

Fans and investors alike have been looking ahead to this the day when they will be able to buy Ferrari stock. Parent company Fiat will be floating 9.1% of Ferrari in a placement that, based on the individual share price and market demand, should quantify the value of the entire company at around $10.0 billion with shares priced at $52.00 a piece.

The strong interest from investors could push the price to $53.00 dollars per share according to CNBC. At that IPO price, Ferrari’s shares would land in a higher range than indicated in the prospectus, sending investors a clear sign of its approval from the market.

FCA is floating a 10% stake in Ferrari, while another 10% will remain in the hands of Piero Ferrari (son of founder Enzo Ferrari), and 80% under Fiat Chrysler. In early 2016, FCA’s shares will be distributed pro rata to the FCAU shareholders. The Agnelli family, through their holding company Exor, which also owns a stake in The Economist magazine, will keep a 24% stake in Ferrari, also retaining key voting rights along with Piero Ferrari.

Financials Ahead of Ferrari IPO

The Prancing Horse has raised expectations for the IPO as it issued its updated prospectus filed with the SEC, which suggests the automaker to hit net profits of between $105.6 million and $109.0 million in the quarter, or up by about 60% to 66% over the same period of 2014. Revenues have been rising steadily year over year. For fiscal 2014, Ferrari saw a total of $3.1 billion and an operating profit of $441.7 million. The IPO price could even hit $62.00 per share, given the extent of demand.

Nevertheless, the numbers are there simply to attract new shareholders, perhaps those who know little of Ferrari and care only about a profitable investment. Many of those considering buying Ferrari shares, in fact, are more interested in the romance of owning a piece, however small, of one of the most famous brands in the world. The name Ferrari and its equine symbol are recognized even in places where the roads are few. Brand Finance, which as the name suggests is a brand-consulting firm, says the brand alone is worth some $4.0 billion. Of course, smart investors will not confuse the brand’s perception with the company’s performance.

There are certainly good reasons to take the bullish path on Ferrari stock, which could deliver a return on investment even in a short period, relying on the appeal and euphoria behind the IPO. A bearish outlook is also possible for those who believe the indicated IPO prices to be too high in relation to the company’s actual value—perhaps taking a cue from Facebook’s IPO when the initial excitement was followed by a lull. However, the bears would be going against the odds on Ferrari.

Fiat Could Be the Biggest Winner in the Ferrari IPO

Strong investor interest has pushed the price towards the higher end of the range established at the beginning of $48.00 and $52.00. At $52.00 per share, the 18.8 million shares that are offered are worth $977.6 million dollars.

Exor and FCA chairman John Elkann, along with the chairman of Ferrari and of FCA Sergio Marchionne will ring the opening bell at the New York Stock Exchange for Ferrari’s listing. It is a historic moment, a year after the birth of Fiat Chrysler Automobiles, and a key event for the future of FCA. The proceeds of the IPO will help bring down FCA’s debt, allowing for the implementation of the company’s ambitious 2014 to 2018 strategic plan, which Marchionne presented in Detroit on May 6 last year.

Ferrari’s IPO is therefore a crucial one to allow FCA to produce seven million cars by 2018 with the use of 100% of the production capacity at plants in Italy and Europe. The prospectus was filed on October 9th at the New Century Business Netherlands NV, a company that will give rise Ferrari N.V., the one now listed on the NYSE.

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