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Investment Opportunity
ADW Capital currently maintains a significant position in Fiat Chrysler Automobiles (NYSE:FCAU, BIT:FCA)
We believe an investment in Fiat Chrysler represents a once in a lifetime opportunity to own THE premiere
global luxury brand Ferrari an asset we believe could potentially be worth ~25+ a share today for
approximately ~15 a share (The trading price of Fiat Chrysler in Milan)
Ex-Ferrari, you are getting the 7th Largest Global Automaker with huge insider ownership, the best
management team in the industry, and ~11 of Book Value, for free
30.0
25.0
20.0
15.0
10.0
5.0
0.0
1997
2000
Jun 1996
Alusuisse
2004
2006
2009
2012
2015
Source: Capital IQ
9.0
7.0
Exor
8.0
S&P 500
6.0
5.0
4.0
3.0
2.0
1.0
2009
2010
2011
2012
2013
2014
2015
March, 2009
John Elkann takes the helm at Exor
Source: Capital IQ
10.0x
HNWIs
Ferrari Production
8.0x
6.0x
4.0x
2.0x
0.0x
1985
1995
2005
2015
Not surprisingly, this mismatch has resulted in waiting lists for many Ferrari models of ~3 years
(1) Source: Capgemini / RBC Wealth Management World Wealth Report
CONFIDENTIAL 2015 ADW CAPITAL MANAGEMENT, LLC. ALL RIGHTS RESERVED.
Sergio has made many public comments implying that he is going to increase production
He has also been on record saying, there comes a point when exclusivity, if it becomes unreachable, is no
longer exclusivity, its like youre reading a fiction novellets not fool ourselves, we are in the business
of selling cars to people
In Sergios May 2014 Analyst Day he laid out what we view as extremely conservative economics of scaling
production of Ferraris from 7,000 to 10,000 per year. We do not view this as a thought exercise
A slide titled Sergios Views in the Ferrari Presentation states, volume could potentially increase to 10,000
cars p.a. as HNW population expands especially in emerging / non-traditional markets
But most importantly, we find the fact that long time Ferrari Chariman, Luca De Montezemolo quit while
receiving a 15M payment in connection with his resignation. This is especially telling since his resignation
came only one month before the announcement of Ferraris planned IPO
Luca had publicly opposed raising the production cap for Ferrari and had been described by news media to
be continuously butting heads with Marchionne
A telling indicator of production increases appeared three days after Lucas resignation,
when Ferrari announced a 5 percent production increase
Ferrari Margins
70%
Gross Margin
EBIT Margin
60%
50%
40%
30%
20%
10%
0%
2012
2013
2014
2015
2016
2017
2018
As Ferrari scales production with incremental EBIT Margins of 60 80% the delta between
Gross Margin and EBIT Margin will narrow significantly
CONFIDENTIAL 2015 ADW CAPITAL MANAGEMENT, LLC. ALL RIGHTS RESERVED.
Ferrari Valuation
EBIT Margin Comparison1
50%
40%
30%
Bull
Base
Bear
2018E Units
2018E Revenue
2018E EBIT
2018 EBIT Margin
10,000
4,847
2,137
44.1%
10,000
4,696
1,947
41.5%
9,000
4,073
1,427
35.0%
EV / EBIT Multiple
18.0x
16.5x
15.0x
25.52
( 10.58)
21.32
( 6.38)
14.20
0.74
8.4%
5.5%
8.4%
4.5%
5.5%
3.5%
20%
Memo:
Unit Growth p.a. (2015E-2018E)
Pricing p.a. (2015E-2018E)
10%
0%
2012
2013
2014
Ferrari
2015
Hermes
2016
2017
2018
Note: Model does not include upside from licensing. Projections driven solely from
incremental units sold
We believe that a luxury multiple is justified due to Ferraris capital intensity, EBIT margins at scaled unit production,
operating leverage, and price inelasticity. In fact, Hermes today trades at 16.5x 2018E EBIT and has lower
projected operating margins and higher capital intensity
Based on our model, we believe that the FCA RemainCo / Stub at ~11 of book value and 3.00
5.00 of earnings power is not worth a negative value
(1) Auto Peer Group includes BMW, Daimler, and Harley Davidson
Source: Capital IQ and internal projections
CONFIDENTIAL 2015 ADW CAPITAL MANAGEMENT, LLC. ALL RIGHTS RESERVED.
The incremental revenue opportunities beyond production growth are immense. Largely driven by
white-labeling Maserati and Alfa Romeo engines, we think Ferrari could add ~300 500 million of
EBIT or ~4.0 6.0 of value over the next several years (not in our model)
CONFIDENTIAL 2015 ADW CAPITAL MANAGEMENT, LLC. ALL RIGHTS RESERVED.
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Units
CAGR (%)
1995
2010
2015
15,000
40,000
60,000
6.8%
8.4%
11
12
Our investment case is predicated on the fact that the Company (ex-Ferrari) which has ~11 of
book value and 3.00 5.00 of earnings power is not worth a negative value
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We think Sergio will continue to execute on his plan but believe these assets realistically offer
~13.25 per share on a fully unencumbered basis -- a real margin of safety. Not included in this
total is Fiats most valuable remaining asset, Jeep, which Adam Jonas at Morgan Stanley
believes at a normalized EBIT margin of 10% could be worth ~23B, or ~15.50 per share today
CONFIDENTIAL 2015 ADW CAPITAL MANAGEMENT, LLC. ALL RIGHTS RESERVED.
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We believe that there is significant reason for Sergio and John to be tight-lipped about the true
value of Ferrari
CONFIDENTIAL 2015 ADW CAPITAL MANAGEMENT, LLC. ALL RIGHTS RESERVED.
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Contact
ADW Capital Management, LLC
1133 Broadway Suite 719
New York, NY 10010
Adam D. Wyden
212-920-9634
adam@adwcapital.com
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