Love Formula 1 and always wondered how you could get some financial skin in the game? After all, it’s a multi-billion dollar industry, thanks to controversial former Formula 1 tycoon Bernie Ecclestone’s success in attracting valuable TV viewing contracts and big name sponsorship for the sport.
It’s not possible to invest directly in Formula 1 teams, of course, and it’s worth remembering that racing is a highly risky investment. However, it is possible to trade indirectly in the sport by buying shares in companies associated with Formula 1.
Liberty Media, run by US billionaire John Malone and part owner of radio company Sirius XM in the US, bought F1’s parent company Delta TopCo in 2017 for $8 billion and the company is publically traded in the US.
As with many other areas, good options can also be buying the so-called ‘picks and shovel’ firms related to the industry rather than the main players themselves.
Remember that it’s never a good idea to go long blindly in something just because you’re a fan. Many football aficionados have been disappointed by investing in their own teams’ shares. It’s important to make sure that the companies you are buying into are good investments in their own right.
Always do your own research before committing your money, because in the worse-case scenario you could wind up losing it all. Here are some stock suggestions:
Liberty Media – F1 in turnaround mode
Through a complex collection of companies, Liberty Media Corporation owns Formula 1, Sirius XM - the broadcasting company famous for outspoken host Howard Stern - and the Braves baseball group. Formula 1 has had a tough time over the past few years due to the worldwide Covid lockdowns. However, things are looking up for the company.
In its first-quarter results, Liberty Media Corp said that the Formula 1 season has started well. “The F1 season is off to a fantastic start, with thrilling races to-date and many more to come on our record 23-race 2023 calendar," said Stefano Domenicali, Formula 1 President and CEO.
"The race weekends are drawing huge crowds, with the Australian Grand Prix hosting 445,000 fans and sellouts for the majority of the remaining calendar. The power of our platform continues to draw interest also from commercial partners, with a number of new and expanded sponsors already announced season-to-date.”
However, while Formula 1 operating income rose 6% to $381 million, operating profits remained relatively flat at $35 million in the quarter (from $34m the previous quarter).
The company says that team salaries increased, while the Paddock Club saw increased costs associated with higher hospitality attendance and the $6million in costs from the Las Vegas Grand Prix. Nevertheless, Formula 1 is seeing growth across its media rights contracts, subscriptions to its Formula 1 channel and sponsorship revenue, while freight costs have fallen.
The shares are up 18.8% over the year and, while the positive trajectory continues, investors may wish to take some profits.
Ricardo – motorsports and the environment
It isn’t possible to trade directly in Formula 1 team Mclaren, which is privately held. However, UK-quoted Ricardo is an engineering firm, which produces transmission services and components for the Mclaren team. The company has a number of ex-Formula 1 engineers working for it and much expertise in motorsport at its specialist centre in Leamington Spa.
Ricardo is not a one-trick pony, however, also providing its consultancy and engineering services across rail, commercial vehicles, government, defence, the environment and many other sectors.
Management says that, due to the implementation of green policies by various governments across the world, it is seeing more and more demand for its climate support services. Plus, Ricardo’s A&I division is increasing its research into alternative fuel options and electric vehicles, so it should benefit from the push towards greener transport.
At the half-year results in February 2022, order intake hiked by 16% to £210 million. Meanwhile, revenues rose 13% to £185.5 million and the company recovered from last year’s losses of £2.1 million to post pre-tax profits of £3.7 million. Net debt was also cut to £39 million from £50.4 million in the prior year.
The shares are up 8% this year to 414p - just over £1 over their five-year lows of 306p, seen in August 2020. However, they still remain way off their five-year highs of 1075p, seen in May 2018.
Ferrari – the resilience of luxury brands
Italian-based Ferrari, formed by the legendary Enzo Ferrari in 1939 from the Alfa Romeo racing team, is now worth €40 billion. While investors can’t put their money directly in the Ferrari Formula 1 team, the world-famous car brand is publically listed on the Milan and New York stock exchanges.
In its first-quarter results for 2022, Ferrari announced record net sales of €1.2 billion, up 17.3% on the same period in 2021, while EBITDA rose 12.5% to €423 million compared to the previous year.
Benedetto Vigna, chief executive of Ferrari, says the company is currently enjoying a “strong net order intake,” which has continued over the first three months of 2022, boosted by advance sales of the Daytona SP3. The new limited edition model Daytona SP3, designed for the 2023 market and boasting a V12 engine, is a tribute to the team’s success in the 1967 24 hour Daytona race.
Sales of the vehicle, which retails for $2.3 million a unit, and the 812 Competizione A helped Ferrari double its free cash flow for the quarter to €300 million.
“Today the order book already covers well into 2023 and most of our models are sold out,” Vigna told investors. “[Although] 2022 has been marked by several uncertainties in the geopolitical scenario, I therefore remain optimistic about the future prospect of the company.”
Indeed, although US sales dipped 12.8%, sales to Europe, the Middle East and Africa rose 19.5%, while shipments to China, Hong Kong and Taiwan were up a “robust” 47%. Sponsorship and commercial revenues also increased by 19.6% to €109 million, thanks to an improved Formula 1 ranking in 2021.
While the looming worldwide recession may hit the company’s shares, luxury brands are not always as vulnerable as mid-range brands because their clients can prove more resilient to macroeconomic fluctuations.
That said, there may be fewer bankers able to spend their annual bonus on a new sports car next year and Covid lockdowns in Asia may also hit sales. And, with net debt having halved to €136 million, compared to €297 million the previous year, Ferrari looks better placed for the bad times.
At $211, the shares are off their five-year highs of $278.8 seen in November 2021, which could offer a good entry point for buyers.
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