5QQMN532
Asset Management
Tutorial 3
Practical applications of valuing equity. A case study of Ferrari
You are a buy-side analyst who works for a large asset management firm. Your head of investments has requested you prepare a valuation of Ferrari. Your firm is interested in purchasing a significant stake in Ferrari but only at the right price.
This is a real case designed to demonstrate the valuation challenges faced by asset managers. Your task is to read through the case and identify and extract relevant data. I have also uploaded a spreadsheet with the financial data.
Hint: this case does not require a lot of calculations. This case is mainly about identifying and interpreting data relevant to equity valuation.
Read the Harvard case and come prepared to the tutorial to discuss the following:
1. What industry is Ferrari competing in? How competitive is the industry? You may find it helpful to employ Porter’s Five Forces to describe the industry.
2. What is Ferrari’s current financial strategy? Why does Ferrari take part in an IPO?
3. Using a multiples approach, place a value on Ferrari shares. You decide what
multiple to use to arrive at a valuation. Justify your approach as much as you can.
4. Your firm’s brokerage has supplied a valuation of Ferrari using free flows (shown in Exhibit TN 3 [pg. 10] of the case). How does this valuation approach work? Be ready to answer questions from your investment team about assumptions made and how sensitive the valuation is to changes in these assumptions.
5. At what price do you recommend your firm would be buyer of Ferrari shares?