Welcome to the Sustainable Money Mail š We think investing should be about trying to beat the market while providing capital to companies that make the world a better place. This week, weāre writing about one of the highest-quality growth stocks with sustainable ambitions.
Headlines:
Starbucks investors defy new CEO, and vote for company to investigate mis-treatment of its work force. [BBG]
Holcim commits to invest $2bn in carbon capture to offset emissions from cement production. [ESG Today]
Calamos Investments launches new suite of sustainable ETFs on the NYSE. [GR]
Mercedes-Benz outlines new ESG commitments, seeking to double EV sales in 2023, and an 80% emission reduction through investments in solar and wind power by 2030. [BW]
German energy tech firm Siemens launches inaugural green bond, raising ā¬1.5 billion. [ESG Today]
30,000 funds downgraded by MSCI after overhaul of sustainability assessment; only 0.2% of funds will have AAA ESG rating. [BBG]
UNās first global water conference sees hundreds of non-binding pledges towards global access to clean water. [Guardian]
JPM hires Hispanic private equity expert to boost ESG team. [FN]
Blackrock sees $4bn outflow from ESG funds; could be a sign of U.S investors re-balancing for anti-ESG backlash. [IW]
What weāre reading:
How ESG investment can fight the global hunger crisis. [Triple Pundit]
The anti-ESG movement is built on racism. [Daily KOS]
Stock Pick: Ferrari (ā¬RACE)
Ferrari shares are up 23% YTD on resilient growth and enticing prospects for future profit. Hereās why we like this company:
Ferrari is based in Italy, and its shares are listed on the NYSE and the BIT (Milan Bourse). Shares have gained 152% in the past 5 years, and currently trade around all time highs of ā¬248 per share (or $270 on the NYSE).
It makes luxury cars in two categories: Sports (Portofino, Roma) and Pilot (296 GTS). 85% of revenue comes from selling cars, personalization, and spare parts. Other revenue streams include engines, merchandise (inc apparel, eyewear, luxury watches), Formula 1 sponsorships, and the Ferrari World theme park in Abu Dhabi.
Ferrari recently reported full year 2022 earnings, with net revenue at ā¬5.1bn, up 19.3% y/y. Revenue from cars and spare parts was up 21.5% thanks to higher volumes and increased interest in personalization.
Net income was ā¬922mm, at a very healthy operating margin of 24.4%
The engines segment revenue dropped by 18% to ā¬155mm, attributed to lower shipments to Maserati as their 2023 contract expiration gets closer.
Currency ā including translation and transaction impacts as well as foreign currency hedges ā had a positive impact of ā¬161mm, mostly related to USD and Chinese Yuan strength. A reversal of the USD bull run could hurt its NA business this year.
Ferrari sells 45% of its cars in EMEA, 26% in the Americas, and 11.7% in Mainland China, Hong Kong and Taiwan - this region has doubled as a share of Ferrariās business in the past two years, as the company builds models suited for the APAC market, and has established a prestigious brand image in China.
Last September, it launched the new Purosangue SUV model (the companyās first ever four door four seater), targeting a middle-ground between performance and comfort. It was instantly popular, driving new business in all regions, especially China. It conservatively estimated the Purosangue will represent 20% of Ferrari sales across its lifetime.
It has 15 new cars slated to be released by 2026, most of which will be variants on current models. Currently 22% of cars sold are hybrids, and Ferrari is investing heavily in the transition to EVs. Its next brand new model will probably come in 2025, with the launch of its first ever fully electric car.
Ferrari has a dedicated customer base: 98% male, average age 51yo, and half own at least five vehicles.
It is also promoting the high-margin āFerrari Lifestyle Strategy,ā launching three dedicated fashion shows to promote its apparel business, and rationalizing its licensing agreements (expecting to cut off about 50%) to ensure exclusivity of the Ferrari brand. It will expand merchandize into high-end watches and high-end writing instruments, consumer electronics, sportswear, toys, leading video games, and other accessories, and plan to venture into NFTs should the crypto market regain popularity.
Ferrari is expanding its patent portfolio, with an 13% y/y growth in gross carry value for concessions, patents and licences.
Ferrari is aiming for true carbon neutrality by 2030, using a new fuel cell plant and photovoltaic system to cut down on emissions, and adopting new filter technology thatĀ led to a reduction of approximately 5% of energy consumption per car.
CEO Benedetto Vigna has a degree in subnuclear physics and is the author of over 200 patents. The company has been named one of the best places to work four years in a row, and offers employees a yearly competitive award of up to nearly ā¬13,500.
In January, the company repurchased 123,760 common shares for a total consideration of ā¬26.8mm. It currently pays out a 0.73% dividend.
Ferrari shares are pretty expensive, trading at a forward p/e ratio of 35.2 (vs 13.6 for the Eurostoxx 50 index, and 28.8 for Tesla, the only other financially healthy luxury car company). But with a strong record of growth in all regions across their whole portfolio of cars, healthy expansion of the merchandizing business, and no legal or management issues to worry about, itās no wonder that growth investors love Ferrari, and itās one of the rare companies posting triple-digit gains over a five year period that isnāt exposed to the tech sector.
If the market turns sharply against expensive high-ratio stocks, Ferrariās share price growth might slow down or turn negative, but this is one of the best businesses to survive almost any economic conditions and continue growing its revenue and net earnings for years to come.
Note:
All opinions are the authorās own. This is not investment advice. Please consult your financial advisor before making investment decisions.Ā
Disclosure:
The SMM and its writers do not have a position in Ferrari NV, but may buy, increase or sell a position at any time.
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