Tickets for the Grand Prix Season Singapore (GPSS), better known as the Formula One or F1 race, are exorbitantly expensive, as are hotel rooms around the circuit. An innocent attempt at booking a room at one of the hotels had the price per night at $1,462.
Fortunately, investors can find value in F1-related stocks, as we have discovered investible stocks in the F1 value chain (see Table 1), despite no pure-play F1 stock except for Formula One Group (a subsidiary of Liberty Media Corp), separately listed on Nasdaq. Companies within the F1 value chain have different lines of business that contribute more significantly to their revenue and income.
We at The Edge Singapore have shortlisted, valued and scored a list of companies that span the value chain, ranging from engine makers to e-sports equipment manufacturers. We have included listed companies participating in the F1 Championship.
Mercedes top in valuations
Among the grid of Formula 1 teams, Mercedes is in pole position in terms of overall score and is strongly undervalued. The parent company is Xetra-listed Mercedes-Benz Group (formerly Daimler-Benz), with a market cap of US$65 billion ($84.6 billion). According to Forbes, Mercedes as an F1 team is valued at US$3.8 billion, second only to Ferrari, which is valued at US$3.9 billion, in 2023.
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The Mercedes F1 team, also known as the Silver Arrows, has grown around 274% since 2019, valued at US$1 billion, with revenue growing from US$450 million to US$700 million over the same period. This strong growth is mainly attributable to expenditure caps on F1 teams, which encourages spending limits, where in 2023, each team is allowed to spend US$135 million a year. Previously, F1 teams operated with lower surpluses and even deficits, as top teams and constructors could overspend, leaving smaller teams in the dust.
One way to profit from F1 is to win, as more than US$1 billion in championship rewards and prizes are available. Historically, the Silver Arrows has won the Formula 1 Constructors’ Championship eight out of the past 10 years.
Mercedes also supplements its income by supplying engines to other teams, such as Aston Martin, McLaren and Williams.
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Aside from F1, Mercedes generates most of its revenue and income from the manufacturing and sales of commercial vehicles. It is one of the leading global suppliers of premium and luxury cars and also offers financing, leasing, fleet management, investments, insurance brokerage and innovative mobility services.
Based on our valuation metrics, using our unique quantitative analysis, which includes identifying strong balance sheets (the backbone of any company), we think Mercedes is undervalued with an intrinsic valuation of EUR74.3 ($106.73) compared to its price as at Sept 6 of EUR58.5 (see Charts 1a and 1b).
Brembo, a necessary brake
A reliable braking system is crucial to F1 racing, and Borsa Italiana-listed Brembo is a key player in the F1 value chain. Brembo’s presence in F1 dates back to 1975. An astonishing 500 Grand Prix victories, 26 World Driver Championships and 30 World Constructors’ Championships relied on Brembo’s brakes. And Brembo looks set to win more victories.
As part of a major regulation overhaul in 2021, the Fédération Internationale de l’Automobile (FIA), the governing body for F1, opened up a tender to assign a sole supplier for brake systems in F1. This tender runs until 2024 and can be extended until 2025. Brembo has been the sole supplier of brake components to F1 teams for the past four years. The company supplies core brake callipers to all 10 teams on the F1 grid. Additionally, for the 2024 season, Brembo has developed new braking systems customised for each team and will supply most of the F1 teams with hydraulics that include master cylinders and by-wire units and friction components which include carbon discs and pads.
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Lewis Hamilton, Michael Schumacher and Ayrton Senna are some F1 icons that have used Brembo brakes in their championship-winning F1 cars and Brembo has won F1 championships as a braking system supplier eight times between 2011 and 2020, before the sole supplier tender rule.
Separately from F1, Brembo generates most of its revenue and income from designing, manufacturing, and marketing disc braking systems and components to the automotive industry. The company offers brake discs, wheel-side modules, and brakes for automobiles, light commercial and heavy industrial vehicles, motorbikes and other racing cars worldwide.
Similarly, using our in-house valuation model with a plethora of quantitative metrics, Brembo is likely undervalued at its current price (as at Sept 6) of EUR10, as our model values the company at EUR12.2 (see Charts 2a and 2b).
The ubiquitous Visa
Visa needs no introduction as almost everyone is likely to own a Visa card. The company is listed on the NYSE, and is a globally recognised global payments services company with market capitalisation of US$566 billion. Visa is the title partner for the Visa Cash App RB Formula 1 team, formerly the Scuderia AlphaTauri Formula 1 team.
Visa announced its global partnership with the Red Bull Formula 1 teams earlier this year, with a multi-year deal that encompasses a title partnership of Visa Cash App RB Formula 1 team, a corresponding title partnership with the F1 Academy team and an official partner of Oracle Red Bull Racing Formula 1 team. This is Visa’s first new major global sports sponsorship in more than 15 years, with the Visa logo appearing on both the Oracle Red Bull Racing and Visa Cash App RB cars as well as the F1 Academy entries from the respective teams.
Visa’s multi-faceted involvement in F1 includes a sponsorship deal between Visa and Red Bull, valued at over US$20 million annually or 1.5% of Visa’s total marketing expenses which are around US$1.4 billion over four quarters. In return, Visa is able to conspicuously display its logo on Visa Cash App RB cars and strategically on the nose of the Oracle Red Bull Racing Formula 1 team, just above the driver’s number.
As the most watched motorsport globally, marketing in F1 through prominently displayed logos is likely a cost-effective way for large companies like Visa to market their payes of our quantitative analysis-based scoring table indicating that Mercedes, Brembo and Visa offer value for money at their Sept 6 prices of EUR58.5, EUR10 and US$279.4. E ments services business globally.
Separately from F1, Visa is a world leader in digital payments, facilitating transactions between consumers, merchants, financial institutions and government entities across more than 200 countries. The company’s mission is to connect the world through the most innovative, convenient, reliable and secure payments network, enabling individuals, businesses and economies to thrive.
Once again we have a visual display of our quantitative analysis of Visa in Charts 3a and 3b. We think that the company is undervalued, with its intrinsic value at US$324.3, above its current trading price of US$279.4.
Additionally, we have Table 1 which shows other companies within the F1 value chain. Table 2 comprises of our quantitative analysis-based scoring table indicating that Mercedes, Brembo and Visa offer value for money at their Sept 6 prices of EUR58.5, EUR10 and US$279.4.
Disclaimer: This article is for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy or sell stocks, including the stocks mentioned herein. This article does not take into account an investor’s particular financial situation, investment objectives, investment horizon, risk profile, risk tolerance and preferences. Any personal investments should be done at the investor's own discretion and/or after consulting licensed investment professionals, at their own risk.
