Since September, Ferrari shares have underperformed the wider luxury sector by 14ppt. Based on our conversations with investors, this appears due to concerns around weaker volumes in Q3, however in our view these are unfounded as purely due to phasing between Q3 and Q4. Furthermore, we see the set-up into 2021 as very favourable with waiting lists in excess of 18 months for some models ("too long" according to management) and order book "as strong as ever" despite Covid. We believe that the wider valuation gap vs. Hermès at 31% (vs. historical 13%) is a good entry opportunity and reiterate our Buy rating.

Ferrari is among the world's leading luxury brands, focused on the design, engineering, production, and sale of the world's most recognizable luxury performance sports cars. The company's name and history are closely associated with its Formula 1 racing team, Scuderia Ferrari, the most successful team in Formula 1 history. The company operates in four segments: Cars and Spare Parts; Engines; Sponsorship, Commercial and Brand; and Other. The company is headquartered in Maranello, Italy.

We believe the strength of the brand and unparalleled revenue/ cash flow visibility warrant a premium valuation. As such we think that over time the valuation discount vs. Hermès should narrow and we see further potential upside given i) penetration still well below other luxury goods; ii) demand > supply; iii) loyal client base of high net worth individuals; iv) high pricing power historically unexploited; v) untapped growth opportunities longer term (e.g. FUV & China). We reiterate our Buy rating.

Key risks include the company decides to not catch up on lost 2020 volumes, leaving volume CAGR of 1.4% over 2019-22e and volumes of 10,575 by 2022e. Other risks include lower than expected take-up rate on hybrid volume, with penetration of just 50% by 2022, hence lowering the price-mix contribution.

* Total return including dividend yield. For an ADD idea: positive performance if price went up. For a REDUCE idea: positive performance if price went down.
Source: UBS. Prices correct as of latest data available on the date indicated. Company Profile, Investment Case and Risks in Investment Case as of 14 October 2020