Riva Residenze And INFYNITO Series Expected To Boost Competitive Edge

Key Takeaways

• Ferretti's focus on high-margin yacht segments and residential luxury is set to enhance revenue stability, diversify streams, and elevate earnings.
  
• Strong order backlog and anticipated R&D-driven innovation are poised to bolster future margins and maintain market competitiveness.
  
• Decline in order backlog and regional underperformance, along with pricing competition, could affect Ferretti's revenue stability and short-term earnings.

Catalysts

Designs, constructs, and sells luxury yachts and pleasure vessels under the Riva, Wally, Ferretti Yachts, Pershing, Itama, CRN, and Custom Line brands globally.

• Ferretti's focus on high-margin segments such as Made-to-Measure yachts and Super Yachts, which have shown sound growth and visibility into 2025-2028, is likely to enhance revenue stability and profitability. This shift is expected to positively impact EBITDA margins as these segments are cash-generative.
  
• The introduction of Riva Residenze, a brand extension into residential luxury, is projected to create additional revenue streams and brand royalties. This expansion into non-traditional products could diversify revenue and elevate overall earnings.
  
• Investments in R&D, totaling €25 million, signify Ferretti's commitment to innovation and differentiation in the market. Development of eco-friendly yachts and new models like the Ferretti INFYNITO series is anticipated to boost future revenues and maintain competitive advantage.
  
• Positive signals from the U.S. market post-elections and potential Fed interest rate cuts could revitalize order intakes, particularly in the Americas, translating into higher future revenues and improved earnings, which might address the current underperformance in that region.
  
• The company's record-high order backlog of €1.6 billion, with potential upside from a recovering U.S. market and increased visibility in high-demand yacht segments, suggests robust future revenue and margin growth prospects.

Ferretti Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ferretti's revenue will grow by 1.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.7% today to 8.4% in 3 years time.
• Analysts expect earnings to reach €113.3 million (and earnings per share of €0.33) by about February 2028, up from €86.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €134.9 million in earnings, and the most bearish expecting €94 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.8x on those 2028 earnings, up from 11.2x today. This future PE is greater than the current PE for the HK Leisure industry at 11.3x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.5%, as per the Simply Wall St company report.

Ferretti Future Earnings Per Share Growth

Risks

• The decline in order backlog by 9.9% as of September 30, 2024, raises concerns about potential future revenue slowdowns if similar trends continue or if the current high backlog doesn't translate into timely deliveries. This can impact revenue stability.
  
• The company's performance in Asia Pacific is underperforming, particularly due to challenges in Greater China, which might affect anticipated revenue growth from that region.
  
• There is intense pricing competition in the lower segments of the yacht market, which could pressure margins and affect profitability if Ferretti has to offer discounts to compete.
  
• The temporary slowdown in the Made-to-measure segment could impact short-term revenue growth, particularly if this trend isn't reversed in subsequent quarters.
  
• The delayed order intake in the Americas, especially in the Composite segment, points to potential challenges in achieving expected revenue from that market, impacting short-term earnings predictability.

Valuation

• The analysts have a consensus price target of HK$38.967 for Ferretti based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €1.4 billion, earnings will come to €113.3 million, and it would be trading on a PE ratio of 18.8x, assuming you use a discount rate of 9.5%.
  
• Given the current share price of HK$23.2, the analyst price target of HK$38.97 is 40.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.