(The authors are Reuters Breakingviews columnists. The opinions expressed are their own. Refiles to remove extraneous advisory.)

 

MELBOURNE - Ferretti may find Victoria Harbour just as challenging to navigate as Lake Como. Roughly two years after aborting an initial public offering effort in Milan, the Italian yacht maker is trying again in Hong Kong. It will be equally difficult to make a splash.

Best known for its Riva speedboats favoured by Hollywood stars and the ultra-rich, Ferretti has been docked for a decade at a Chinese state-owned enterprise whose product lines include spark plugs and bus engines. Weichai Group and Shandong Heavy Industry bought control of the embattled company from creditors in 2012. Its last attempt at a market debut flopped when a 1.1 billion euros valuation target, roughly $1.2 billion, proved too ambitious.

Although the initial strategy to grow sales in China and nearby has not gone to plan, demand elsewhere is rebounding. Annual revenue in Asia-Pacific fell from 2018 to 2020, and the region accounted for just 5% of the total in the nine months to Sept. 30, about half the proportion from a year earlier. And yet the company’s top line swelled by 63% over the same span, to nearly 700 million euros ($794 million), as disrupted travel and social activities sparked an affluent buying binge in Europe and the Americas.

Assume last year’s adjusted EBITDA tallies 110 million euros. On rival Sanlorenzo’s 14 times multiple, Ferretti’s equity would be worth some 1.6 billion euros after adding back net cash. A valuation discount is reasonable, however, for an SOE-backed company, and one whose shares will be listed where unpredictable and extended trading halts are not uncommon.

Ferretti also isn’t a household name that can be leveraged in Asia the way some brands do when selling stock to mom-and-pop investors. Foreign issuers account for just 6% of the Hong Kong bourse’s market cap. The only other Italian company listed in the city is Prada, and the upscale retailer has generated a downscale total return of 3.8% a year since its 2011 float.

Another potential deterrent is that dividends or capital gains from selling shares may be subject to taxation in Italy. On a lower multiple of, say, 10 times, Ferretti would be worth around what it was seeking back in 2019. Talk about the slow boat to China.

 

CONTEXT NEWS

- Ferretti Group on Dec. 24 unveiled its prospectus for an initial public offering in Hong Kong, with CICC listed as the sole sponsor. The Italian yacht maker is majority owned through a complex web of holding companies by Chinese state-owned enterprise Shandong Heavy Industry Group-Weichai Group, which took control in 2012 in a 374 million euros agreement with the company’s creditors.

- In the nine months through Sept. 30, Ferretti’s revenue increased 63%, to 693 million euros, from a year earlier. Net profit more than quintupled to 32 million euros over the same span.

- The company aborted a planned IPO in Milan in October 2019 after deciding the listing price would have been too low.

- The market for luxury yachts was estimated to be worth about 22 billion euros in 2021, according to Bain & Co and the Italian luxury industry’s Fondazione Altagamma.

(The authors are Reuters Breakingviews columnists. The opinions expressed are their own. Refiles to remove extraneous advisory.)

(Column by Jeffrey Goldfarb in Melbourne, Lisa Jucca in Milan. Editing by Robyn Mak and Katrina Hamlin) ((For previous columns by the authors, Reuters customers can click on GOLDFARB/ and JUCCA/ SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS https://bit.ly/BVsubscribe | jeffrey.goldfarb@thomsonreuters.com; Reuters Messaging: jeffrey.goldfarb.thomsonreuters.com@reuters.net))