Made To Measure Focus And Super Yacht Backlog Will Support A Stronger Future Outlook

Catalysts

About Ferretti

Ferretti designs and manufactures luxury yachts across seven brands, serving clients globally from 8 to 95 meters.

What are the underlying business or industry changes driving this perspective?

• The growing preference among high net worth buyers for larger, more customized yachts is feeding Ferretti's focus on the made to measure segment, which now represents 55% of order intake and is likely to support mix driven revenue growth and higher gross margins.
• Ferretti has already completed its second CapEx cycle, including the Ravenna expansion, so management now expects capital expenditure of around 5% to 6% of revenues from 2026, which can increase free cash flow conversion and support future earnings.
• The order backlog and net backlog have both risen, with book to bill at or above 1x, which gives multi year revenue visibility and can reduce earnings volatility compared with more transactional peers.
• Branded super yachts such as the Riva 54 meters are sold out to 2028 for branded units and 2029 for full bespoke, while currently representing about 20% of revenue with fully utilized capacity. This sets up potential future revenue and EBITDA growth if Ferretti adds capacity or pricing power in this segment.
• Ferretti reports that 44% of order intake comes from repeat clients and that younger buyers are increasingly drawn to its brands. This supports long term pricing resilience for new builds and helps preserve residual values, both of which can underpin margins and earnings quality.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Ferretti's revenue will grow by 3.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.5% today to 8.2% in 3 years time.
• Analysts expect earnings to reach €120.9 million (and earnings per share of €0.37) by about February 2029, up from €87.5 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as €135.7 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 15.4x on those 2029 earnings, up from 14.6x today. This future PE is lower than the current PE for the IT Leisure industry at 27.8x.
• 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 8.9%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The premium end of the yacht market is currently benefiting from strong demand for larger, customized boats, but management repeatedly stresses how a few Made to Measure sales can swing quarterly numbers. This points to a structurally lumpy order pattern that could create periods of weak revenue and earnings if even a small number of high ticket deals fall through.
• Management highlights very aggressive discounting from competitors, especially in composite yachts where some rivals are offering 40% to 45% off list prices. While Ferretti is resisting those levels, it has already had to provide extra discounts and lean on cost savings, which could pressure revenue growth and limit any planned uplift in EBITDA margin.
• The company relies heavily on super yachts and Made to Measure models with production slots already committed out to 2028 and 2029. If demand for ultra high end yachts slows or buyers delay orders, the current fully utilized capacity in Super Yachts could turn into underutilization, which would weigh on revenue and net margins.
• Asia Pacific remains a very small contributor at around 2% of order intake and management is openly disappointed with the region despite its long term wealth potential. If efforts to build a stronger dealer network and attract younger buyers there do not gain traction, Ferretti could miss out on an important growth pool, which may limit long run revenue and earnings expansion.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of €4.26 for Ferretti based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €4.75, and the most bearish reporting a price target of just €3.5.
  
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be €1.5 billion, earnings will come to €120.9 million, and it would be trading on a PE ratio of 15.4x, assuming you use a discount rate of 8.9%.
  
• Given the current share price of €3.77, the analyst price target of €4.26 is 11.4% 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.