TIVP089 (Video): Exor NV (EXO): The Massive Discount Continues To Widen w/ Kyle Grieve & Shawn O'Malley

Speaker A: At the beginning of 2026, we told you that you could buy Ferrari at a 50% discount by owning it through Exer, an Italian holding company. And since then, EXER has actually sold off 3 billion euros worth of its Ferrari stake and the discount to net asset value has widened and the stock has since been down after we bought it.

Speaker B: So naturally, the question we keep asking ourselves is, did we mess this one up?

Speaker A: And like many investment related problems, the answer lies in the gray area. Because while while the holding company has been somewhat of a dud on paper, the crown jewel asset underneath Ferrari has posted yet another record quarter.

Speaker B: And not only did it post another record quarter, but they're guiding for its best year in history.

Speaker C: You're listening to the Intrinsic Value Podcast by the Investors podcast network. Since 2014, with over 180 million downloads, we've learned directly from the world's best investors. Now we're applying those lessons to analyze businesses and investment opportunities every week, helping you uncover intrinsic value. This show is not investment advice. It's intended for informational and entertainment purposes only. All opinions expressed by hosts and guests are solely their, um, own, and they may have investments in the securities discussed. And now, here are your hosts, Sean o' Malley and Kyle Grieve.

Speaker A: If you've been listening to the show for a while, you know that there are two companies that we really like and you can think of it as sort of a double header. We covered Ferrari as a standalone stock and the conclusion on Ferrari was pretty simple. We love the business, but we didn't necessarily love the valuation, at least not at that time. M It was a little too rich for our value investing blood, but luckily for us, we have a wide audience of, uh, very intelligent listeners who like to point things out to us. And one of them guided us towards a name we'd never heard of before, and that was exer. And EXER just so happened to be Ferrari's largest shareholder. And as a holding company, it traded at a massive discount to the net asset value of its holdings. As I mentioned a moment ago. So we were able to get EXER at about a 60% discount to its net asset value, which meant that in a sense, we got Ferrari's shares at the same discount proportionately. And if you accept that premise, then, well, this is one way to bypass the valuation concerns of investing in Ferrari entirely and, and get that very high quality business at a much more attractive price.

Speaker B: So today we aren't making a new pitch like we usually do. Today we're actually going to update you on how the thesis has unfolded to hold ourselves, you know, accountable. And we'll give you a primer on everything you need to know just so that you can follow along, even if you haven't yet heard our previous coverage of either XOR or fer. Now, I want to do an episode like this just to kind of show some of the conversations that we have in the background when deciding whether to do nothing with the business, maybe add to that position, or ultimately exit it, either partially or completely. Now, I'm really excited for this one because Sean and Daniel did just a really, really good job covering both EXER and Ferrari. So I'm getting my chance to really, you know, dive deep into the thesis that they already built for me and try to figure out whether, you know, it still stands or if things have fundamentally changed. We're going to spend the bulk of today's episode on Ferrari, which was the primary reason that we bought extra shares in the first place. But we'll look at a few of Xor's other assets as well. So, Sean, um, I know you were the one who took the lead on pitching Xor as an investment. Why don't you maybe take us through what has happened since buying it?

Speaker A: We got the business for about 86 a share, and today those same shares are sitting at 79, so clearly down a bit. And EXER hasn't yet published its latest news NAV numbers, net asset value numbers. So we don't have any updates on that end, but we bought it when its net asset value was about $193 per share. And that's that discount that we're talking about of. Of the market price versus the value of the underlying assets. And obviously that's a huge discount, which provides a really hefty margin of safety. But if the market value of its assets declines further, like we've seen with Ferrari, the. Then of course that's going to push down EXER shares further, too. And so Ferrari has had a pretty volatile year with multiple stumbles that each pushed the stock down over 15%, but it's actually up modestly for 2026. It's just that year over year, the performance looks pretty rough. And that's despite record high numbers on the top and bottom lines for Ferrari, albeit with a decelerating growth rate. And that has primarily contributed to the market's revision of Ferrari's valuation multiple lower. Uh, in terms of what price it's willing to pay for a dollar of Ferrari's earnings.

Speaker B: To be honest, given what has happened with Ferrari so far, this year. It doesn't really surprise me that Exer's price hasn't moved in the right direction since, you know, Ferrari is their biggest investment, even though they own substantial stakes in a number of other businesses that are, you know, somewhat disassociated. And yet, as we kind of feared, in a bare case, Exer's discount to NAV has actually widened since we bought in it. Now, granted, it hasn't been that long since we first started investing in it, but still, it's a little bit concerning.

Speaker A: I mean, yeah, the thing about investing in a holding company is an understanding how discounts to NAV behave, which is the value you get when you subtract all of the company's liabilities from its assets. That's all that net asset value is. And so in theory, the market cap of a holding company like this should approximately be equal to its net asset value with maybe a small premium if the market has a lot of faith in the managers making capital allocation decisions. Or more likely a, uh, small discount because you're buying into an entity that owns businesses that you could mostly just buy yourself, yet you have no say in the capital allocation decisions, or maybe there are tax frictions or concerns about the quality of the investment decisions being made, then you can get more substantial discounts. And so Berkshire is a rare example of a holding company that usually trades at a premium to its book value, which is the same sort of idea as net asset value. And it's enjoyed that privilege thanks to the fact that for decades, of course, it's had the world's best investor making decisions at the top of the business with Warren Buffett. And so besides that very notable exception, many holding companies can be erratic. And timing when the discount will close really just comes down to making an educated guess. And so in Exra's case, it was obvious to us, uh, that the business was and still is heavily undervalued. The market value of their Ferrari stake alone is worth more than the market cap of exer. And that just doesn't make a ton of sense academically. And, and since we liked the assets that Exer held, including Ferrari, but also some of their other assets, we were fine holding the business with this kind of large discount to nav because we felt like even if it takes some time to close, we're getting high quality assets and we're getting a very attractive price on them. And, well, unfortunately, that is the problem that we're seeing is that it is taking a long time for that gap to close. And I don't think it means yet that the thesis is broken. But more so it just shows that of course we are human and getting the exact timing right is nearly impossible. Which is why we just want to be really approximately correct over a five year time horizon or longer. And I would say that's probably still true, but that's what we'll be hoping to assess today.

Speaker B: So if Ferrari is the crown jewel and many investors see EXAR specifically as a proxy vehicle for getting exposure to Ferrari at a cheaper price, then why would they trim their Ferrari stake?

Speaker A: Right, yeah. So that was one of the more controversial things that EXER has done in the last year. And I think part of the reason for that decision was, was to free up capital for new acquisitions and investments. And so at the same time too, Ferrari was trading at uh, one of its most expensive PE multiples ever. So in hindsight the timing actually looks very, very good. We were talking about that before the call. Uh, you couldn't have timed it much better in terms of Ferrari was probably overvalued in hindsight and they partially cashed in on that. So the timing was very, very good. And since then though, nothing meaningful has really happened with exer. That would explain why the market has continued to be so sour on it. You know, EXER reports biannually and their first half 2026 report isn't out yet, which will be a great resource and assessing how they plan to allocate capital going forward, what the most up to date net asset value numbers are. So we'll definitely be waiting for those numbers to still come out.

Speaker B: Yeah. So for as many complaints that we've had about them selling off parts of that Ferrari stake, we have to keep in mind just how successful that investment was. So, you know, it was an 11x over a 10 year period. I mean that's nothing at all to scoff at. So I can see why they trimmed the position. And as of now it looks like they did a excellent job, you know, timing that sale as it reached its all time high before going through some of the issues that it's had this year. So getting back to our point here on holding companies, you'd think that the market would actually reward Xor maybe to some extent for cashing out at such a large gain. But I guess there's enough Ferrari focused investors in EXER who basically read that sale as kind of a weakness and not a strength. Almost like maybe they don't trust EXER to reinvest it.

Speaker A: Well, yeah, I think it's just a little bit of a uh, of a protest at the fact that, you know, there's this very simple narrative of, hey, Exer is a cheap way to own Ferrari. And then Exer is saying, hey, we're more than that. We can make our own capital allocation decisions. And so they do something that actually ends up creating value for shareholders pretty effectively in terms of the timing of when they trim the Ferrari position. But was very unpopular with the actual shareholder base because so many folks are just investing in the company as this Ferrari proxy, as, ah, we talked about. And the story becomes much more complicated when exit reduces its Ferrari position. And so I would say it's a mix of that, or it could also be a signal that investors no longer think that Ferrari itself has the same upside, especially that it did at its IPO when it spun off from Fiat. And so if I look at Ferrari's revenue and profits and per share earnings over the past five years, I mean, these are numbers are still very, very good. But I would have low confidence that even if they maintain these incredible growth rates, the stock is going to be an 11x again over the next decade. Because the reality is Ferrari is just a more mature company than it was. And the stock today reflects Ferrari's quality positioning much more so than it did at, ah, at ipo.

Speaker B: Yeah, I think when it comes to Xor and given kind of, uh, the complexity of its different holdings, it's kind of a type of business that will never make all investors happy simultaneously. You know, if you have value investors in there that like it for the net asset value, then they will begin to sell once net asset value and the stock price converge. If you have investors who own Xor specifically for Ferrari, they're obviously going to be upset when the Ferrari stakes are sold off. And if you're an investor who holds it for some of the other assets, well, you may be happy to see those assets increase in value, but be unhappy if they decrease in value. Yet XOR even adds to that stake. So needless to say, you know, I find it hard to believe that XOR can satisfy all of its shareholders simultaneously. But one area where XOR can make its shareholders happy is by looking into the future. If their nav continues to plan, theoretically, its stock price should follow, although it's been kind of loosely correlated over the last decade or so. Now, does the fact that net asset value and stock price have kind of diverged sporadically over the long term scare you at all?

Speaker A: Yeah, I think the market is probably saying something along the lines of, hey, congrats, you, you made A really great investment in Ferrari, which actually was just a spin off of Fiat, which is the company that the family behind Exur had founded. So actually not even an intentional investment decision per se, at least not one attributable to anybody currently on the management team. And so the market's thinking naturally now what we're not convinced you can make great investments elsewhere even if Ferrari continues to drive the net asset value higher. And so at some point they just can't rely solely on Ferrari to be able to drive double digit net asset value growth. And so I think the market wants to see Exur proof that they can make other home run investments because Exer's other assets at the moment are really not that inspiring. And so Stellantis is, for example, this, uh, conglomeration of car brands like Dodge and Jeep and Fiat. And it's a, uh, legacy inheritance of the Fiat Chrysler business. And so it's not exactly one of the best businesses in the world. Solantis is honestly getting its butt kicked by Chinese competition. And just generally car manufacturing is a very competitive and low margin industry. And I say that with the caveat that we don't really think of Ferrari as quite being a car manufacturer per se. Right. Ferrari is a luxury brand and they're selling at a very different price point than, you know, a new Jeep is, is going for. And so that partially explains how I can say in one hand that car manufacturing is not a great business to be in and then say that we like Ferrari. And you know, there are some other smaller investments that Exer has on its balance sheet too. It's got an ownership stake in the football club Juventus, which is actually publicly traded. But still, sports teams are also not known for being great businesses either, notoriously, uh, at least outside of maybe the NFL. And then there's also some private investments on the books, like the Economist magazine, randomly enough, and then also Christian Louboutin, which is fairly compelling. But with these being private, there are liquidity issues that causes the market to discount their value. And the economists in Louboutin and Juventus are a pretty small percentage of the overall net asset value anyways.

Speaker B: Yeah, and I'll just comment there on your point about Ferrari not being kind of a car business. I mean, obviously, you know, when you look at it, yes, it is a car business, but when you're looking at specifically luxury, um, businesses, they operate in a completely different way. They have completely different margins. And that's why, you know, I think, Sean, you made this point in the Ferrari episode that it almost has these SAs like margins which you never basically see from a car manufacturer. Now I want to discuss Ferrari here specifically about how the current narrative of that business has progressed this year. So when uh, it was first pitched on this show, there definitely was an electric angle. I mean I think the Luce, maybe the name of the Luce wasn't quite announced yet, but it was expected that they would have an electric, fully electric vehicle that was going to be released. But you know, fast forward today and now we have the Ferrari Luce. We've seen what it looks like and um, from the sound of it, it wasn't um, received well. But just from looking at some of the numbers that I've seen, it's actually been probably selling quite well. But again the, the market wasn't crazy about it. So after the Luche press release was dropped, Ferrari shares fell actually about 7%. So we're going to touch a lot more on the EV angle a little bit later here in this episode. But needless to say, when it comes to Ferrari, I think the narrative, I mean it's really just business as usual. You know, Ferrari is still a strong brand and despite what many people are saying about the Luche, I find it pretty hard to believe anyone is selling the Ferrari just because they may not agree with the direction of Ferrari went with electric cars or even the Luce.

Speaker A: So Daniel for sure has some hard opinions on the Luche. He's not a fan. And I uh, think the problem to me is that EVs are fundamentally more about efficiency and practicality. Right. The Toyota Prius comes to mind. They're not these like high end performance vehicles. And partially there's just a structural design issue where because the batteries are so big big, you can't get the sleek shape of a usual Ferrari. And you definitely don't get the revving engine, you don't get the same performance results. And so if you're spending hundreds of thousands of dollars or a million dollars plus on a car, why would you want something that's practical? I mean the whole point is that it's sort of an irrational thing to do. But the fact that you can do it is what makes it special. And so I think the point is to get something extreme. And to me the Luce looks very practical. It looks like a decent car. It looks like something I would buy for my family and you know, your wife would drive around with the kids in, but it, it's doesn't really look like a Ferrari. And I think that has made it pretty easy to mock. And honestly if it were Released from any other car brand, it probably would have been better received. And still, that said, I don't want to put too much weight on a single car release because I do think it's a big milestone, symbolically for them to release their first ev. But I also don't think the fate of the company hinges on it. And, and one thing I like to think about is, okay, there is a narrative in some circles that the Ferrari brand has been tarnished due to the release of the Luce. Really? The question is, do the numbers actually back up that narrative?

Speaker B: Yeah, and I couldn't agree more with your narrative and the numbers comment there. Sean Aswath, the matteran, has a good book called Narrative and numbers where he mixes the two to help make good investment decisions. And my guess, given the sell off in Ferrari stock price after the Luce was announced, was that the market was just leaning purely on narrative. And, you know, I just don't really see why else the stock price would decrease by about 8% in one day. But it really just goes to show you that in markets, the narrative definitely matters, at least in the short term. But oddly enough, even though Ferrari stock price has rebounded by 8% since before they made that luche announcement, meaning Ferrari bulls have stepped in and actually started buying some race shares at what they believe, I guess, to be depressed prices.

Speaker A: Uh, that's true. Uh, and keep in mind that Ferrari as a stock is pretty much never cheap. Kind of like the. The products they sell. The business was trading at 57 times earnings in early 2025. But after some weakness to start 2026 and the Lucha news, you were able to get Ferrari shares at a comparative bargain bin price of only 30 times earnings, which I say a little bit sarcastically, but not entirely. And that also doesn't include the additional discount that you might have gotten from buying through exer. So in theory, you might have been able to get Ferrari for 15 times earnings through Exer, if you timed it right.

Speaker B: Yeah. And while 30 times earnings is kind of optically expensive, um, the fact is, like you just mentioned, Ferrari is never cheap. And then if you buy it through Xor, obviously Ferrari at, uh, 15 times earnings. Well, wow, that's, that's, that's very compelling. And as you outlined on your episode on them, Sean, you know, Ferrari is a business that's just incredibly resilient. One interesting thing about certain luxury brands that I picked up over the time of just looking at multiple ones is that the businesses that are most recession resistant tend to be businesses that leverage their own scarcity that which is embedded inside of their business model. So one of our mastermind community members made a really good point about luxury brands that have these weight lists just like Ferrari. So if, let's say, the world, the entire world, or maybe a specific country goes into a recession and your name is called to purchase a new Ferrari because you're next up on that wait list. Well, chances are, if you want to remain in good standing with Ferrari, you're going to need to figure out a way to come up with that money, even if things aren't going so well in the world around you. And so, you know, even when you look at the pandemic, for instance, revenue did actually decrease. It was the only year since its IPO that revenue didn't increase, but the decrease was very mild compared to most businesses, at only about 8%. So my assumption was that it might have been a little bit harder for Ferrari to actually have people in the same room to sell, given the lockdowns, which kind of impeded some of their sales. But even during CO, the stock was very resilient. Its PE, you know, stayed mostly about 40 times in 2020, other than, you know, the immediate lockdown announcement. So, needless to say, um, Ferrari is just a very, very strong business, very, very resilient to economic shocks as well. And I think it's going to continue being a great business for many years to come.

Speaker A: And if we ignore the luce, it is really difficult to see why Ferrari has trended down so far in 2026. We have numbers from the first quarter of 2026 to look at. And so in Q1, Ferrari sold 3436 units. And if we annualize that number, you get a little bit under 14,000 units. And that is pretty decent trajectory in terms of their historical annual sales rates and growing on that over time. So I think if we look at the number of vehicles sold, the number really isn't any lower than any other time in Ferrari's history. And 2024 was kind of a peak year for them. But again, based on annualizing that current number, they're definitely set to do fine, which is not the the implication you would get from looking at the stock price.

Speaker B: So if Ferrari is still selling the same amount of cars, you know, what else could be spooking the market? Perhaps it's the mix of cars. We know, Sean, that all Ferraris are expensive, but even when you look at Ferraris, some are much more expensive than others. So perhaps the mix this quarter was weaker than last, and maybe the margins dropped. That would be something I could see happening. But this also doesn't seem right either, since EBITDA margins actually increased from about 39% to 40%. So in reality, it just seems that the market has somewhat changed its mood on this business just because of the Luche announcement.

Speaker A: And in October, the company did actually release its five year outlook. And the implied revenue growth that they're targeting over the next couple years is something like 5% a year. And clearly for a stock priced at 60, uh, times earnings, at one point they were expecting a much higher growth rate well into the future. So the speed with which Ferrari has seemingly become a mature business, I think was a surprise to the market. And that definitely makes the sell off at least partially justified. Right. If your expectations of future growth in terms of what management is telling you, what they think is likely to happen, have been significantly curtailed, then of course, the market is not going to pay a massive premium for the business. And they also, I think, took some of the excitement out of the Luce release because they've already revised down their percentage of their model lineup that they expect to be electric vehicles by 2030 from 40% to 20%. So they cut that expectation in half. And even if you don't hate the Luche, Ferrari has clearly signaled that electric vehicles won't be as big of a bet for them as they once thought. After sinking a lot of resources and R and D into that area, and then just generally a lot of luxury stocks have been beaten down because China is one of the largest luxury markets in the world. And there's been a pretty clear slowdown in luxury spending going on over there. And it might be cyclical, but still it's a headwind that's definitely not doing Ferrari any favors in the immediate future.

Speaker B: Yeah, I mean, to me it really feels like the market is discounting the demand for the luche. Perhaps they're really just focusing on what the press releases are saying about the business rather than, you know, maybe zooming out a little bit and seeing Ferrari for what it really is, which is a strong luxury car brand continuing to sell, you know, cars at very expensive prices. But if you read what former CEO Luca D. Montezo said, you'd think Luche spelt Ferrari's death sentence. So he said, if I were to say what I really think, I'd be doing Ferrari a disservice. You know, we risk destroying a legend, and I'm truly sorry about that. I hope they at least remove the prancing horse from that car. Now, one of the complaints that I remember that Daniel shared with us about Ferrari after the Luche was announced was that he felt that the brand would actually be hurt by the Luche. He said that he spoke with a few Ferrari owners that he knew, and the general feeling was that the Ferrari owners that he spoke to likely were not going to spend any money on buying a Luce. Now, since Ferrari has historically gotten repeat sales from about 85% of its customers, if the Luce had little demand from its current customers, it just wouldn't end up selling very well.

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All the links are in the show notes below. Hope to see you in New York it's pretty harsh words to hear from a former CEO of Ferrari and I always had a bit of an issue with this take because I think Ferrari is with the Luce trying to fundamentally expand their customer base and customer loyalty and retention has been an incredible strength of the business. One of the things that drew us to investing in the company and why we refer to it as being such a high quality business. But there's also a recognition that if you're going to keep growing earnings at double digit rates, they do need to probably reach new types of customers ultimately. So their total number of vehicle sales has been relatively flat for a few years now and the market is definitely not going to keep a 60 times earnings multiple on that forever. So to me that explains a lot of the rerating too. Even if for the time being Ferrari has been able to make up for flat volumes with price hikes, the thinking is that price hikes can't drive the business for forever because it's just not sustainable. And reading between the lines a bit, to me the Luche is a car again that is meant to appeal to a more tech forward cohort, a different type of of group than Ferrari's core customer demographic. Ferrari has always focused on internal combustion engine vehicles and so buying an electric car was probably not going to resonate ever with many of their core customers. But for better or worse, that is sort of the point of why you launch an electric vehicle. If the Luche attracts a new type of customer to Ferrari that has never bought a Ferrari before, while the core customers keep coming back for traditional Ferrari styles. And despite all the market narrative and all the drama that would be good for the business. And so it's important to remember that so many of Ferrari's cars are sold to repeat customers. And we actually have pretty good data on how many annual buyers Ferrari has. And it's somewhere around 14,000 individuals. And that's just an insanely small number to underpin a $70 billion market cap company. But with the Luce, I think they are moving towards trying to attract more EV focused buyers, obviously, who want both an electric car with the aura of Ferrari. And so I could see it doing well in Silicon Valley or maybe in China. Right. People there might be very attracted to the Luche in these more cutting edge tech type cities.

Speaker B: Right. You know, China seems like a market they were clearly targeting with Luce. And it appears that Ferrari allocated somewhere around 90 Luche units for the Chinese market. So I actually read an article, um, while researching this episode in the Car News China, and it was published sometime in late June, about a month after the Luche was announced. Now, interestingly, the Luche in China was sold for a small 7% discount to the European price. But, you know, we're still talking about a $590,000 car here. So it's not like the 60% discount we got from buying Ferrari through Xor. But the point here is that the car is actually sold out, according to that article, after a month, just a month in China. So, you know, I think that's a pretty good signal that chances are it's probably going to do well in other geographies as well. Now, Ferrari CEO Benedetto Vigna has said that they have received orders from both current and new customers. But more importantly, he said the order book is actually extending out towards the end of 2027, which, you know, to me that signifies that there's a pretty healthy amount of demand for the Lucha.

Speaker A: Yeah, that's the kind of validation that you would want to see to ensure that a Ferrari thesis is still on track if the stock price hasn't been kind to us. And just to give you a quick overview of what we outline as our expectations when valuing Ferrari, some of those key performance indicators over the next five years, we're expecting about 1 to 2% volume growth a year. Not super ambitious. Uh, 7% total revenue growth. So that includes, you know, about 5% a year on price and then 1 to 2% on volume growth, and then R and D as a result of the really great operating leverage that this business has, falling toward 13% of sales and then operating margins correspondingly expanding to 30% in our terminal year in the model. So, not to bog you down with numbers too much, but for anybody curious that was sort of the numbers we were using. And if all that were to happen, we expected earnings per share to be able to grow in the low double digits each year for several more years going forward. And again, those are sort of the assumptions that we used when underwriting Ferrari's intrinsic value.

Speaker B: Yeah, and that's a great refresher. So let's have a look at where we stand today. So keep in mind this will be a much more powerful exercise the longer we are out from the initial thesis, but even in the shorter, you know, six month term, I still think that we can get some pretty decent signals. So first is volume growth. We haven't really seen this move all that much. I, I did mention that on an annualized basis, volume could reach an all time high of something around 13, 744, which would represent a volume increase of about 2% over 2025. However, if we look at the quarterly numbers for car shipments, they tend to be more heavily weighted to the front of the year in that Q1, and then they gradually decrease as the year continues. So, you know, given the Q1, 2026 numbers is actually lower than both 2025 and 2024. Volume may actually slightly contract in fiscal 2026.

Speaker A: It's probably not the most inspiring start to our Ferrari ownership. But also the percentage rates feel more arbitrary when you think that literally an extra 50 vehicle sales could materially move sales volume trends. And so we're not talking about a huge number of vehicles that need to be sold and at a very high level. I do think there will be more and more wealthy people that want to own Ferraris over time. And so that gives me pretty good confidence in saying that yes, sales volumes will continue to grow. And any given year though, or maybe for the next few years, sure, volumes could definitely be flat or decline modestly. And I can't say with any certainty what would happen. And I'd also say, and this is a bit of a separate conversation, but part of what we liked with the EXER setup is that Ferrari doesn't necessarily need to have incredible growth for an investment in exert to potentially work out well. Ferrari just needs to perform decently while we wait for some mean reversion and exers discount to nav, probably driven by buybacks that I've alluded to earlier or some of their other investments beginning to bear fruit as well. Because when you're buying exer, you can think of it as either getting a discount on Ferrari or paying full price for Ferrari, but getting a bunch of these other investments that they own on their balance sheet for free, and you're getting free call options on those businesses. So if those other investments begin to bear fruit, then you could definitely theoretically do very well from betting on, on exit. Because to at least some extent, the stock price has to follow the net asset value. Even if there can be fluctuations in how big the discount is, uh, they certainly aren't going to go in opposite directions long term.

Speaker B: Yeah, I mean, that's really the beautiful part about buying stocks that are cheap. Right. I mean, when you have a cheap stock, theoretically, that business can basically do absolutely nothing more than what it's doing today. So, you know, the intrinsic value doesn't really change, but as long as you get, uh, some sort of expansion, and whether that's in its multiple or if that, in this case with Xor, the nav and the share price close, well, there's your return right there. And it kind of simplifies things, which I always really appreciate about an investment thesis. So let's get back to some of these KPIs here. So the second KPI was based around revenue growth and the assumption there are kind of in that 6 to 7% range per year. And since we didn't really expect much in terms of volume growth, the assumption here was based a lot on the pricing power of Ferrari, which Sean kind of alluded to. And Ferrari very clearly has pricing power, as I think Sean and Daniel did a really good job of portraying in their episode on that business. So looking at the Numbers, just from 2017 until now, the average revenue per unit has increased very drastically from about 239,000 to 446,000. And, you know, this is why Ferrari doesn't necessarily have to increase its volume. That's a 5% kegger just in its ability to increase its price. So, you know, this is just the beauty of luxury. You know, Ferrari decides it wants to keep its volume stable, all they need to do is increase their prices by 5% per year and they'll get that 5% rise in revenue per year without any changes to their input costs. And because you don't have changes to your input costs while you're charging more and more money, you get that beautiful operating leverage effect.

Speaker A: Yeah. So I would say I think management is maybe being a little modest when they say that they're targeting 5% revenue growth per year over the next five years. I think they're setting a low bar. But if that is true, then obviously we would have, you know, slightly overstated their revenue compounding. But still, there is an operating leverage benefit most likely here. And so that goes into this third and fourth KPI that we talked about in terms of R and D as a percentage of sales and an expansion of operating margins correspondingly. And for the latest quarter, R and D as a percentage of sales has actually tracked our initial assumption of about 13%. So that's a nice green light there to see. And the thing is, is someone wealthy enough to buy a Ferrari? I mean, what is an extra 5% in price? That is probably not going to dissuade them at all because of course there's a massive amount of price insensitivity because you're dealing with ultra wealthy customers that are thinking about buying Ferrari. So I should also mention that in the show notes we'll have a link to our Ferrari model in case you want to see all the different ways that we tried to value the business and the different assumptions that we used kind of underpinning what we're talking about here. And in terms of the target operating margins, our assumption was that by the end of 2029 they'd have about 30% operating profit and Ferrari is already about, uh, half a percent away from that. Given the pricing power they have and in the fact that management gave guidance of 29 and a half percent, I would say that we have a lot of conviction in them hitting that 30% target and, and maybe probably even surpassing it, making up for the fact that we might be slightly over optimistic on the revenue compounding side.

Speaker B: Yeah, I tend to agree with you. I, I kind of feel like management, uh, is kind of sandbagging the revenue number. I mean, the only way I can see it, it, it doesn't rise by 5% is if they, you know, meaningfully decide to lower their, their volume, which, you know, doesn't really seem like they're going to do that that much. Um, so yeah, it'll be interesting to see. But yeah, I mean, I just going back and looking at the numbers from the original Ferrari thesis, they all seem very, very, uh, achievable. I would, I would say. So I'm, I'm very confident in uh, what that model is at right now. So needless to say, we've spent a lot of time here on the Luce, but it's also important to understand that it's actually not the only car that has been introduced to Ferrari's LineUp. So in 2026 they've introduced two other cars, the Testarossa, uh, Spider and the Amalfi Spider. The Testarossa Spider is a Hybrid with over a thousand horsepower and the ability to accelerate from 0 to 100 in just 2.3 seconds. These models are going for about $600,000 and higher. And then the Amalfi Spider is a two door convertible. And it's definitely not as powerful as a Testarossa. But you know, when it comes to Ferrari, that's all relative given just how ridiculously powerful and fast these cars are. So the Amalfi Spider comes in at a price point below $300,000. And interestingly, one thing I remember reading when I was looking at some of the reviews of the Amalfi Spider was that they're kind of seeing it as kind of an entry level car for Ferrari. And just kind of given the price point of it, I, I can kind of see that because obviously, like I said, the average purchase price for a Ferrari is somewhere around $450,000. So the fact that their pricing is at 300k, uh, maybe that goes to show that maybe they want to start getting some people that maybe don't have quite as much money to spend, you know, $4 million on a Ferrari, but do have $300,000 to spend on a Ferrari. So that'll be, uh, kind of an interesting point to follow over time, as usually it should. These cars are stay in, in the, uh, manufacturing ecosystem for about five years, so it'll be interesting to see how many units of this they sell.

Speaker A: Well, there you go, folks. For the humble price of $300,000, you can be a Ferrari owner. I think both of the models look pretty incredible to me, but to be fair, I'm not the target customer, unfortunately not even the target customer for their entry level vehicle. So it doesn't really matter what I think. But I also haven't had too much of a chance to look at the demand for these two models specifically. And I know Ferrari doesn't really release too much information on that kind of thing either. So were you able to come up with how Ferrari's current customers are thinking about these two new releases? Uh, are they being received well, from what you've come across?

Speaker B: Unfortunately, not really to the same extent as the Lucha. I wasn't really able to find any specific geography that, you know, was claiming that these cars are on some sort of long waitlist or even sold out. Now that doesn't mean that isn't the case. But you know, these two models just haven't quite had the same fanfare as a Luce. So you can see why they might not be as closely investigated compared to

Speaker A: the Luche well, just to revisit one of your points about the unit volumes that we mentioned a few minutes ago, I want to do so because I think it's important. 2026 was the first year since 2020 that Ferrari released four new models in a given year. In a lot of years it's one or two models, maybe three at most. So they are bringing a lot of models to market. Uh, and that reflects, uh, definitely more capex spending and R and D spending on producing those, those vehicles. And another thing that's important to consider about Ferrari's output is how that relates to customer demand. And So I see 2026 as being kind of a, uh, a hangover year where you go from having a few models to where you're offering significantly more models. And of course the production process is going to have to ramp up to catch up with that. And so, you know, whenever Ferrari has a new model, they generally tend to ramp up production over time. And here's what Ferrari's CEO said on the latest earnings call for emea. Well, I think that uh, you may remember in the last call, Antonio said

Speaker B: that we have different model in ramp up phase.

Speaker A: So, uh, there are different dynamics, a different kind of demand from different clients

Speaker B: in different parts of the world.

Speaker A: So there is nothing, uh, let me

Speaker B: say that was not planned if not

Speaker A: the fact that we are ramping up. Ah, a lot of new models is one that we launched last year.

Speaker B: Yeah, thanks for calling that out. So since Ferrari doesn't have to manufacture, you know, millions of vehicles like the majority of other auto manufacturers, they're very, very intentional about the ramp up of their newer units. So newer models tend to be a little slower on the production side and then they ramp up before hitting kind of a full cadence more towards the end life of that model. So the logic behind this is to focus on what I mentioned a little earlier, which is the point on scarcity. For instance, with the Ferrari F80, Ferrari is only manufacturing they 799 units of that car in total. Now that's not per year, but in total. So this means that the car is just incredibly rare and will only be offered to Ferrari's customers in the absolute best standing. And the price tag on the F80 is in the $4 million range. So, you know, I agree with you on that volume comment. Ferrari, I think, knows what it's doing. And even though it may not increase its volumes very much, it can most definitely rely on other areas such as customization services to help boost both its top and bottom lines.

Speaker A: Yeah, and just to, uh, shift gears here and speak a little bit more about some of the capital deployment developments Ferrari has undergone since we first opened our position in the business. We already know that Ferrari is a company that can reinvest in itself at, uh, returns on invested capital well above 20% a year. And that's a huge strength of the business. So let's dig into how they generate those high returns on capital in more detail.

Speaker B: Yeah, so one area that I really like to focus on for pretty much every business I own is what's happening with a company's working capital. Now you might be thinking, what does that have to do with returns on invested capital? But so let me. I'll get. And I'll get to that. So for a capital light business, it tends not to be too much of an issue simply because a capitalite business might not have any inventory. So you don't get these wild fluctuations in cash flow. But as I was just discussing the 4 million dollar Ferrari F80, the business does tend to carry some inventory. And obviously a Ferrari is worth a lot of money once it's complete. So if we just look at three items, inventory receivables and payables, we actually see that the net working capital has tripled from 2023, which would impact the return on invested capital number by increasing the invested capital number, as working capital is kind of a part of that and which would basically ultimately function to decrease the return on invested capital number.

Speaker A: You got to spend money to make money though, right? With the, the new model releases, they're definitely ramping up the amount of capital that is going to be tied up in inventory. So that's only a problem if they have trouble moving the inventory. But yeah, it's something to keep an eye on. And, and launching a model temporarily raises inventory because Ferrari has to to hold model specific components before assembly partially completed cars throughout what is a relatively long production and personalization process. Plus they have demo vehicles. And then you need completed cars awaiting final configuration or transport or dealer delivery. So you've got all that. And then also as Ferrari has raised prices and sold even more premium models, that of course makes the value of its vehicle inventory more expensive comparatively on paper. So to some extent the growing inventory value simply reflects the accounting behind them raising prices.

Speaker B: Yeah, and the other thing I flagged on Ferrari was their shareholder distribution strategy. So I know that you weren't really a fan of their buyback strategy, Sean, simply because the shares were just never cheap. And the best use of capital for Ferrari, since they do maintain A high capital efficiency number is to just pump as much capital back into the business as possible if they don't have the same reinvestment opportunities. I really think dividends probably make more sense than buybacks. And there's a really easy way to kind of observe this. So as of today, July 20, race shares are trading at a PE of about 36. So if we invert this, we get an earnings yield of about 3%. And this serves as a great proxy for the yield Ferrari would receive from buybacks. So the question then becomes, is there really nowhere else that ah, Ferrari thinks it can earn a better yield than just 3%? So let's say Ferrari asks themselves that question and they say the answer to that when it comes to investing back into Ferrari is no. But it's not as simple as then just assuming you just execute buybacks. You then have to consider, okay, where can your investors earn a return by receiving a dividend? And with The S&P 500 offering returns in the single digits, I think that a dividend just really makes the most amount of sense here if Ferrari does

Speaker A: pay out 40% of their earnings as dividends. So it's a non trivial amount. It's just that the dividend yield looks very low because the stock price has been relatively expensive. Right? The higher the stock price, the lower the dividend yield. And again, that doesn't mean that relative to the business's actual cash flows, they aren't returning a substantial amount of money to shareholders via dividends, because they are. And at the same time, the amount of money they're putting back into the business measured as Capex as a percentage of revenue is pretty average historically. So it's reassuring to me that they're not dramatically under investing in the business to fund the dividend. And of course, if they're bringing to market four new models in a year, you could have probably guessed that Capex wasn't, you know, super, super low. And given that we don't actually own Ferrari shares directly, we don't even get the dividends though, which is kind of something to consider. The dividends get paid to exit and then it's up to EXER to decide what to do with that cash. And exit doesn't pay a dividend. And so if EXOR can use the dividends that it receives to buy back enough shares to close the net asset value gap, which is the thing we've been harking on all day today, well then I would be absolutely ecstatic. Right. But my perspective is definitely a bit biased by being an indirect shareholder than directly being a shareholder, where actually it is probably a good thing, the more I think about it, for that cash to be paid out directly to exer, assuming that they make competent allocation decisions or at least plow it back into buybacks.

Speaker B: Yeah, at least with Ferrari's dividend going to Xor, as long as you believe in Xor's ability to reallocate that capital, then it's probably a good place for that money to go. So one of the best parts of Ferrari to this day is really on the marketing side of things. I think you covered this in your Ferrari episode, and I went pretty deep into it when I analyzed the, uh, formula one group. But the race team angle is really interesting because it essentially acts as an alternative form of advertising for Ferrari. You know, Ferrari is still a brand that doesn't really need to focus too much on getting new customers. I mentioned earlier that Ferrari gets about 85% of its business from repeat customers. For that reason, they just don't have to go out and spend, you know, billions of dollars to try and attract new customers. The ones they already do have do most of the heavy lifting for them. But as you mentioned when you first discussed Ferrari, Sean, the F1 Ferrari team can be seen as kind of their marketing lever. But instead of trying to feature, you know, a specific model or car, they can just feature the team, the technology, or most importantly, maybe the legacy and the narrative of Ferrari.

Speaker A: Yeah, we were talking before the call about how incredibly valuable the brand of Ferrari is and how you look at some of these other brands that are manufacturers of vehicles and then also have incredible IP that goes along with it. So Harley Davidson comes to mind. Even John Deere to an extent comes to mind. Uh, and again, that's a huge advantage when you have almost this, like, mythical level of lore surrounding how people think about your business. And yet, despite the fact that F1 has been a, ah, pretty effective marketing lever for Ferrari generally, they have not been at the top of the Sport for nearly 20 years now. And so their last driver's championship was before the financial Crisis back in 2007, and their last constructors championship was in 2008. So while they have been good, they really have not been the best in a long time. And then that kind of works against you. Right. If you, you're trying to have the reputation of, of justifying $600,000 cars, you probably should be, uh, associated with being the best of the best. And so things have turned around a little bit with them currently being second in the Team standings behind Mercedes.

Speaker B: Yeah, it's funny that you mentioned John, uh, Deere there. So my son used to have a pair of John Deere shoes. And keep in mind he's three years old. And not only that, but he also has, uh, a ton of little cars around and many of them are also Ferrari. So it's just interesting how these brands are probably intentionally trying to get some sort of mind share and even very, very young kids so that they'll hopefully be a customer one day. So I think, you know, it really goes to show you, getting back to the marketing angle, that Ferrari can very easily rely on its, you know, multi decade legacy to help imprint the brand's image into people's minds. It, it doesn't really matter that they haven't won in a long time because they've been very relevant that entire time. Obviously they've been selling more and more cars over that entire time. So, you know, for the strategy now, which I think has worked very well for a long time, it's really just, you know, when it comes to the F1 team, just stay competitive and allow more F1 fans to become fans of Ferrari. And then once those people either make enough money to make Ferrari ownership feasible, they will already know that Ferrari is one of the top status symbols to buy if you just want to show off your car. So we covered some of the most recent events that I think are most relevant to Ferrari right now. But I think we should also have a look at some of the risks that Ferrari is currently facing. So in your analysis of Ferrari, you listed one potential risk being that the younger generation simply is not driving as much as earlier generations.

Speaker A: That's right. And it sounds sort of ridiculous, but actually the numbers around it are, uh, so mind boggling to me when I first saw it that it does actually give you pause. And so since 1983, the percentage of 18 year olds with a driver's license has fallen from 80% to 59%.

Speaker B: Wow. I came across one statistic on top of that that was a real eye opener as well, and that's that in the US only 25 of 16 year olds now have their driver's license. And that's just kind of unfathomable to me because I know when I turned 16, one of the first things I did was book my driver's test so I could just start driving. It was almost seen as kind of this rite of passage into adulthood. But you know, just times change and cultural norms shift as well. A few of the other reasons that I think people are probably driving less today, especially younger folks, is simply that it's expensive. You know, gas is more expensive, insurance is more expensive, servicing your car is more expensive. And with all those things likely to unfortunately continue to get more expensive, not cheaper. I can see why people are getting rid of their cars altogether or just never buying one in the first place and just relying on other forms of transportation like a, uh, business that I know you really like. Sean, in Uber, it is really hard

Speaker A: to say what to make of this trend in possession of driver's licenses over time. And uh, for sure if I were a regular vehicle manufacturer, if I were Toyota, I would be very bothered by that trend. And it would also probably make me want to invest more in building autonomous vehicles that can taxi people around instead. If people don't even have the credentials to be able to buy vehicles in the same way that they did in the past going forward. And so for Ferrari though, the buyer base is so small, talking about a few thousand people, and it's such a dedicated customer base. Remember we said 85% of purchases are made by recurring customers. I just don't think broader trends in vehicle ownership at the macro level, I just don't think it affects them in the same way. Or at least if they ever do feel some kind of sting from it, it's going to be much, much further down the line from when other more typical vehicle manufacturers are impacted. And if cost is also supposedly what's driving down vehicle ownership, then uh, that's really not necessarily a problem for Ferrari either. Right. And surely if you can justify buying a million dollar Ferrari, you're also going to be prepared to spend a lot of money to maintain your car. So I don't think you're going to be too phased by those maintenance bills.

Speaker B: Yeah, it's funny you actually bring that up because I was recently speaking to a member of our mastermind community and he mentioned that he had a friend who went to the track somewhere in the U.S. i believe, to race his Ferrari. Now something happened to his friend's brake pad on the course. And of course, you know, Ferrari had the personnel and the parts on hand to fix the problem immediately, but the cost was something like $8,000. And this is probably 15, 20 times more expensive than getting that done on a normal car. But the point remains, it's that Ferrari owners have a large amount of disposable income. So, you know, the fact that owning a car is getting more expensive is just probably not a problem. I think Ferrari owners spend any time really thinking about and if they want to be environmentally conscious, then they can look to the Luce or one of Ferrari's hybrid models.

Speaker A: And that maintenance work and the parts supplying contributes to revenue too. Right. Ferrari's business encompasses the full life cycle of Ferrari ownership, not just the original sale. And so if you think about it, you can't get your Ferrari serviced by any other type of mechanic.

Speaker B: Right.

Speaker A: Uh, it would be a crazy risk to take for the cost of the vehicle. You want to know that a specialist is working on it. And so accordingly, when Ferrari sells a car to you today, what really you're taking on is maybe a 20 or 30 year commitment to that vehicle and being a recurring customer to Ferrari, buying new tires and whatever else you might need done to it, or if you want to make any customization changes to it over time. So I think that's an important thing to think about is, uh, how long the customer life cycle is and also the fact that Ferrari really has a monopoly on that in the way that no other or very few other vehicle manufacturers do. Also, another risk that we discussed when we first looked at Ferrari was the tariffs. And I would say that hasn't really had an impact on demand. And going back to that first point you made there, Ferrari owners are probably going to be the least price sensitive buying demographic of any I can think of. So if there is a, uh, 10% premium due to some sort of tariff, that just doesn't strike me as a major impediment to demand. And then of course it's only going to be in the North American or specifically the US geography. And Ferraris very much an international company. And, and then you also had the CEO recently commenting on tariffs from their latest earnings release. And when asked about it, he said that they had learned a lot about how to deal with them over the last year. And, and even since tariffs had been introduced, they've been able to make up margin by focusing more on product mix. So selling more higher priced vehicles as well as additional customization services, and that has helped to offset the tariff headwind.

Speaker B: Right now, before we get into some of the other developments, specifically at exer, I'd like to know if your thoughts on Ferrari in terms of its evaluation have really changed at all. You know, given what we've discussed today, I think the model looks very intact, but I'd love to get your insights here.

Speaker A: I would say not that much has changed in my assumptions about the value of Ferrari. I wouldn't be keen to significantly revise higher my estimate of what Ferrari is worth. But, uh, I Definitely don't see any, like, glaring mistakes where we, we should be rerating our assumptions of what Ferrari is worth. It's a great business and it's definitely, uh, more attractively valued than it's been in a long, long time. So, yeah, all those assumptions that we talked about earlier, those KPIs that we're looking at, they seem to be tracking for the most part pretty well with the thesis. And so if anything, the assumptions around operating margins, like I mentioned, are probably a bit too conservative. I think Ferrari, if you can, let's say, sell the same number of models and simply just increase price by 10%, that incremental 10%, those extra dollars coming in, drop completely to the bottom line. And that is another way to think about operating margin. And so when you have a business with very strong pricing power, which is what defines luxury brands, is truly pricing power, then yeah, you certainly, uh, can, can expect them to continue to grow margins over time. Which is why I say we probably are conservative on what can be accomplished on that front. And if margins are expanding, that means every dollar of revenue that comes in, they're converting into more of a profit. Well then ultimately you can have earnings per share growth growing faster than top line revenue for a period of time. So that's all, I think, important context to have when you think about the assumptions for Ferrari going forward.

Speaker B: Right. And you know, if you look at the assumptions that the market is making by just, let's say, looking at a stock chart, you'd probably think that you're getting some sort of value because, you know, it looked like it obviously went up, did really, really well in 2025. And then it's come down quite a lot in 2026. But, you know, the problem with looking at this business from just this angle is that, uh, it was probably super expensive before and it's probably still expensive today, just to a much lesser degree. You know, instead of trading at a PE over 50 times, it's now at 36 times. So while this is a better time to buy shares than it has been in the past, it still just doesn't strike me as the most compelling opportunity out there. I think the optimal buy was probably right after the Luce announcement when it was trading at just, you know, 30 times earnings. That was probably the spot where I know you and Daniel were getting very, very interested in the stock price as well. So let me pose a question for you, Sean. Um, when Ferrari initially got to that 30 times earnings, were you thinking about adding to either Xor or Ferrari?

Speaker A: Maybe it Sounds a little bit greedy, but when you feel like you're getting another more than 50% discount on Ferrari's shares, I guess it didn't feel like it moved the needle a ton for me to see Ferrari's stock swinging around even a good bit there. Obviously, if you had the extra cash ready, you would always want to be able to add to positions as they become cheaper. But I think for Daniel and I at the time, the feeling is that we've gotten the exposure that we want to have to Ferrari at a really great price through exer, and whether we accumulate a few more shares at a modestly lower price is not going to make a difference in the grand scheme of things of how we do on this bet. And, you know, sometimes with certain investments, that's more true than with others. But again, with the margin of safety baked into this investment, if things work out as we hope, we're either going to do well or we're not going to do well. And doubling down at a slightly lower PE is probably not going to move the needle at this point. That's fair.

Speaker B: That's fair. So I really agree with the decision to own Ferrari via, uh, the Xor, but I do want to play devil's advocate here just for a second. So as someone who has invested in holdings, companies and serial acquirers, I do know that, you know, figuring out when the price and value gap will close is really hard and might actually be completely impossible to forecast. So if I give you an example here, I owned 10 cent for a time. Now I remember getting asked by other investors why I didn't just own Process, which was basically a holding company that owned a couple different assets, 10 cent being the biggest one. So if I go back to 10 cent here, I initially bought in 2021 and I exited two years later. So I was very interested in seeing if that discount at all closed since then for Process. And the answer to that is a, uh, resounding no. So today Process trades for about 80 billion euros. The 10 cent position alone is now worth 110 billion euros. And that doesn't include the multitude of other assets that Process owns as well. So, you know, my pushback is that many of these holdings companies, discounts really stay at these large discounts kind of into perpetuity. And I know with the extra discount, we don't need the discount to fully close in order to get some multiple expansion. For instance, the normal historical discount, as you've mentioned, has been about 30 and we're currently somewhere around 60, so, you know, just Getting back to the historical discounts will at least give some multiple tailwinds again if nothing happens. But we are assuming of course that Ferrari is going to get a little bit better over time.

Speaker A: Well, for anybody watching, I, uh, I bowed my head there out of uh, I don't want to say defeat, but I, I think it is a really powerful counterexample to the bull thesis on Exer because it does make my stomach shrink a little bit there. When you think about how this Process situation has dragged out for years and we don't need to get into it too much for anybody who's not familiar with Process, but it was widely pitched in value investing circles for a long time and sort of at a high level. The thesis was very similar to what we're talking about with exer. And I guess my question for you Kyle is did you pretty much always know that you weren't interested in, in trying to get that 10 cent exposure for cheaper through Process?

Speaker B: Yeah, I mean I did and I think it was simply because I didn't really want to bother with the other assets that Process has. You know, 10 cent as it is is a pretty complicated business so I didn't want to have to follow all of Process's other assets as well. So I could have probably just justified ignoring everything else other than 10 cent by owning process. But then I just. Personally I know I would feel uh, kind of an irresponsible business owner. But like you were mentioning there, I don't want to get too off topic here. Let's get back to Xor and some of the most important events that I think probably happened after we added it to the intrinsic value portfolio. So let's start with some of the larger companies. We got Stellantis, Phillips and cnh. So Santis has more or less been kind of in the M meat grinder for all of 2026. So as of July 21, 2026 it's share price is down 48%. Now Stellantis has a new management team so it's very clear that there is some sort of large scale changes happening at the business and clearly the market isn't particularly crazy about it.

Speaker A: But for the other two businesses it, it has been a little bit better. So C and H is a competitor to John Deere for anyone not familiar with it. And then that company stock has been up 11% while Philips is up about 2%. So it's definitely not all doom and gloom across the entire EXER portfolio. And EXER does hold pretty significant positions in these businesses. As a percentage of that net asset value. And that was what I was talking about before when I said you can kind of think of it as you're either getting a discount on Ferrari or you're paying full price for Ferrari, and you're getting these stakes in these other businesses like C and H and Philips, for free, and any upside that comes from them is all gravy. And then in theory, you have such a wide margin of safety, you're not really impacted if those businesses don't do all that well. So, uh, yeah, I would say a large decline in the price of one of these could be pretty painful for EXER shareholders, assuming the NAB discount stays constant. But again, part of the reason we feel good about having bought into EXOR at the price that we did is because there's such an historically abnormally large discount that it sort of acts as a cushion to, uh, absorb some of that volatility in other parts of the portfolio.

Speaker B: Yeah, and one of the parts about XOR that I'd like to mention is its divestitures. Obviously, EXOR is actually a pretty good business that creates value, so the divestitures are actually kind of important. So they made transactions on IVICO Group and gedi, then divested in stakes in a couple of businesses like Lifenet and Nuo, which generated $2 billion of euro for EXER. Now, this was about a 1.4 multiple on their invested capital. Then just kind of reading between the lines here, it looks like they are maybe trying to simplify their holdings a little bit. Maybe that means becoming a little more concentrated and having a more direct strategy that investors can make maybe a little bit more sense of and track it. We won't really know. Like you mentioned there, Sean, they only report on a biannual basis. But hopefully, you know, I personally know, I would like to see them hopefully not diversifying that new capital into new positions, but maybe buying back their own stock. Um, I think that would be a really, really nice signal to the market that they are trying to somewhat simplify things.

Speaker A: So IVECO manufactures big commercial trucks, buses, and even does some, um, defense contracting, too. And it's definitely the most significant divestiture of those you named. And you've already got a whole lot of vehicle manufacturing exposure here via Stellantis and to a lesser extent, Ferrari. So I am glad to see EXER move out of IVECO and free up some more cash. And with the discount to NAV being so wide, all they really need to do, from my perspective, is just simply use that Extra cash to buy back more shares or maybe opportunistically plow it back into Ferrari. When you get things like this, Luce sell off. But when you have such a large margin of safety, you know, why, why not go ahead and do that? I just don't think that EXER really needs to do anything super fancy or brilliant to create value for shareholders here. Really. Just basic blocking and tackling.

Speaker B: Yeah, it's funny you bring up that they could potentially plow it back into Ferrari. That's actually something that came up to me. I mean, he sold it at 58 times. It was available at 30 times. We won't know, of course, until the next quarterly comes out if they did that or not. And, you know, I'm not saying it breaks the case if they didn't rebuy Ferrari at a lower price, but, um, that would be very, very interesting if they, if they looked into that. But yeah, I think, I think I like your points here about, uh, just locking and tackling. Right. Just getting down to the basics. Doing things that you're not trying to be super, super smart. Obviously. You know, Munger Buffett always said that they succeeded by just, uh, doing the things that were as simple as humanly possible and avoiding trying to be smart. So I like the direction that they went on there.

Speaker A: We've spent the bulk of today really trying to nail down what has happened with Ferrari since we established our EXER position. And while we own EXER primarily for that exposure to Ferrari, I do think we'd be doing you a disservice if we didn't spend some time looking at some of other of exer's assets. And we talked about CNH and Philips and Stellantis a bit. But Kyle, you mentioned while researching EXER that you were pretty interested in Lingado, which is their asset management division over at, uh, exer. So, yeah, tell me what you think about that.

Speaker B: Yeah, I never basically spent any time looking at Lingado until I started researching EXER in a lot more depth just to see if, you know, they had some other assets outside of that Ferrari stake. That was interesting. And I couldn't really help but see that they are definitely featuring Lingato a lot more often on their latest IR deck. Just to give you kind of a quick data point. When I searched for how often it was mentioned in their latest deck, it was mentioned about 13 times. That's a double from 2025. And it was mentioned just six times and then five times, uh, the previous years, to be fair, it was only established in 2023. So it's had to build up from that point. But still, I think management is definitely coming around and seeing that Lingado is a more and more valuable piece of the XOR portfolio. And so it'll be interesting to see how this continues to play out.

Speaker A: Yeah. For starters, let's just linger a little bit longer on what Lingato is in the first place. And so Lingado is an investment management company and that differs from the Holdco business model. Lingato manages a mix of capital from Exer. Right. Some seed money from Exert and then capital from outside investors. And then it earns fees from investing those assets under management. Kind of like a mutual fund or. Very much exactly like a mutual fund. So if they do well investing, that's a boon for the seed money that EXER has put into Lingardo. Plus Lingado then is going to earn higher fees across all of their customer portfolios that have increased in value. And it'll also come as no surprise that its chairman is of course John Elkin, who's the CEO of Exer and also the chairman of Stellantis and the heir to the Agnelli family. And that's why I kind of jokingly say that you can't escape the fact that this is a family run business through and through. Every part of it is really touched by the Agnelli family. And so this is just a little bit of a fun fact too. But Lingado means ingot and I think that's supposed to be a placeholder for wealth, kind of like a, like a gold bar. So I think that's a pretty clever name. And then in terms of how consequential Lingado is for EXER shareholders, the big thing to know is that the businesses Aum UM assets under management has tripled since it officially launched to over $10 billion.

Speaker B: Yeah, and this is the really important distinction because yes, obviously tripling Aum UM is very impressive over a short time period. But you also have to ask whether the Aum UM increased due to just bringing on new investors or because the fund has performed well. So I was not able to really find the performance of Lingado, which is made up of four different funds. They're called Intersection, Horizon Innovation and Mosaic. Um, if you look at Exers 2025 report, they wrote that much of the growth has come from investment returns rather than capital inflows, but they don't break down what that mix is. So if they tripled with no capital inflows in two years, I mean, that's obviously spectacular, but obviously that's not something that I think is repeatable over a long period of time.

Speaker A: And in that report they mentioned that most of their returns come specifically from the returns of their intersection strategy. So they're pretty tight lipped on what exactly this strategy is invested in though. But what we can tell is that it is focused on public markets, it's concentrated, and it uses, uh, a variety of long and short investments. And so at a high level, what's interesting is that EXER has a structure where at the parent company level, they're trying to figure out how to allocate excess cash and manage the Ferrari position. And the market is very, very skeptical of their ability to allocate capital, hence the 60% discount to NAV. And then if you zoom in another layer in though, you've got Lingado, which exists inside of EXER and has its own unique investment strategies and is doing very, very well. So I think you joked with me before the call, Kyle, that hey, maybe it would be nice if we could just get the guys at Lingado to manage capital for the entire business.

Speaker B: That's right. I think that would be a huge boon. So when looking specifically at Lingado and some of the holdings that they actually hold, it's very, very hard to find what those are. But I think I was able to find a few of the holdings inside of Lingado. Uh, the best that I was able to find was from Whale Wisdom. So according to them, the Lingado Investment Management LLP has a very concentrated position with the top five positions consisting of Teva Pharmaceut, Carvana, Paramount, Skydance, Valeris and Nova Gold Resources. Now, since Lungato is running four different funds, it's kind of hard to see which of these positions are in which funds. But you can see from these names why it's been just so successful since 2023. If we just take a closer look at, uh, the top two positions there in Teva Pharmaceuticals and Carvana, you can see where a lot of the success comes from. So Teva itself has gone from around $7 to $28 since 2023, which was the date of Lingado's inception. Carvana had an insane ride up, going from about A$50 in 2023 up to $64 today. Now, based on those two positions alone, you can probably see how these guys have managed to multiply their AUM and how a lot of that was through performance. So I definitely have to give them kudos for finding just some incredible, incredible investments on that end.

Speaker A: It's too bad that again, The Exeter holding company hasn't mirrored some of those ngato strategies. Uh, a 4x and a 42x with Carvana in three years is really bad, breathtaking stuff. And generally speaking, Lunato seems to be a great asset for exer, even if you can't bank on those kinds of returns indefinitely. And tripling your portfolio every three years is certainly not realistic even for the best investors in the world. But they don't have to perform that well for Lingado to be a strong complement to everything else EXER is doing either. And I think that's really the theme today is mediocrity is okay when you're buying into a business at a 60% discount.

Speaker B: Yeah, I mean, if you're looking at Xor today at an even larger discount to NAV and are thinking, wow, if Lingado can keep just doubling every three years, they're going to be raking in some massive fees, I think you probably then need to just pump the brakes significantly, specifically for the reasons that you just gave Sean. You know, just to close this point out, though, on, uh, Lingado, it's important to consider exactly how Exor has monetized it. So Lingado is a fully owned investment management company. And even though it has a large aum, obviously that doesn't all belong to Xor. Part of it does, but not all of it. But XOR definitely does have a large stake in the business. And since the performance of the fund has been so good, with 40% gains in 2025 alone, we can see that they are increasing their income statement profits because of the increase in value of their share of the fund.

Speaker A: How about you just walk us through the fee generating part of this business and, uh, how you think about it?

Speaker B: Yeah, so this part is definitely harder to make sense of. Lingado doesn't disclose the fees on the fund, probably because it's still at a reasonably early stage. You know, if this fund was running hundreds of billions of dollars, then I assume the management fees would definitely be large enough to really take note of. But John Elkin has referred to the fees generated by Lingado as eventually being a future recurring revenue fee. So we can make a few assumptions based on the industry averages of other management companies. If we assume, let's say, a 1% management fee, well, then that's a hundred million dollars just in management fees, and that doesn't include any performance fees. If there's taking kind of a standard, you know, 20% of performance, well, that's $240 million based on the change in fair value just in 2025. So I think I can speak for both of us, Sean, in saying that I don't expect them to make 40% a year, but the fact is that as long as they are succeeding here and making just moderate returns, they're going to make some really good managing this fund. Plus, as a large shareholder, they take part in the real gains of the fund as well.

Speaker A: Yeah, I mean, an extra couple hundred million dollars a year in management fees down the line is definitely nothing to scoff at. And whenever we cover new companies, this would normally be the part of the show where we would go over our intrinsic value estimate. But we have sort of already done that today with Ferrari at least, and so I'm not sure that there necessarily needs to be any adjustments made to that model. And really, I think in terms of investing in exer, it just comes down to a more simple question of do we still feel good about making this type of bet? And so, uh, maybe you can tell me, Kyle, how you feel about it after. Since you weren't a part of the original decision making process. When Daniel and I looked at this business, where do you land with your sort of independent analysis?

Speaker B: Yeah, I mean, my thoughts aren't too dissimilar from what you just said there. I don't really see too much of a reason to change things either. You know, Exor is definitely continuing to trade at this massive discount to its net asset value. And we think that the Ferrari asset alone will continue to grow in intrinsic value somewhere. You know, who knows, maybe high single digits or low double digits. But as long as Exor doesn't drastically close the price and value gap, and as long as things are going well for Ferrari, we don't really see much of a reason to sell this business. So I know from an outsider's perspective, it might seem like, why are you guys holding this business when it's just done nothing since you bought it since January? And the answer, at least in my view, is very simple. So the Ferrari business still looks good and we think the valuation gap will close to some degree at some point in the future. So as long as Ferrari continues to compound its intrinsic value, the share price will eventually follow and Exor's NAV will continue to grow. And even if it stays at a massive discount, well, EXOR stock will increase as its NAV increases. The downside being that the discount widens even more. But I think it would be really unprecedented for the discount to get much wider for this type of situation where there are real valuable assets on the balance sheet that cannot be entirely written off. So we said this before and we were maybe a little premature, but it does still feel like an asymmetric bet here where we don't know what will happen with Ferrari. But everything else being equal, I think the discount to NAV can probably only move in one direction in the long term.

Speaker A: I think I said at the beginning of today's episode that you kind of have to accept the premise that Ferrari is a compelling business to own, um, to, to find this as a decently attractive investment opportunity. And again, doesn't need to do phenomenally. But if you're someone who really thinks the Luce has ushered in a dark age for Ferrari, which may be what Daniel thinks, I know as a German he's taken great offense to, uh, the automobile craftsmanship, uh, that went into the Luce and then purely betting on the EXER discount to Nav to narrow. It's just not nearly as attractive as an investment if you're not really excited about Ferrari. Because there's no law of finance, there's no financial gravity that requires the markets to fully recognize EXER's net asset value, even if intuitively you would be pretty logical to expect that the market doesn't have to agree with your logic. And so on the flip side, what's so attractive about this to me is the possibility of having two twin engines magnifying your returns with Ferrari's compounding, which has been very, very good, plus EXER's discount to NAV. Normalizing that alone could be a double. And then if you look at Ferrari, this is a company that has compounded its stock price by 21 a year over the last decade.

Speaker B: Right. I think the opportunity here is still quite compelling, especially looking at it from Xor's point of view. But there was one other area that I want to discuss with you, Sean, on Xor, and that was kill criteria. So the reason I like kill criteria is it helps me be a little more objective on whether or not one of my ideas has been destroyed or not. So when, um, I do a kill criteria, I just. It needs two things. It needs a state and a date. So generally the date I put about a year out, although sometimes if it's a really long term bet, it might be longer. And then the state is just based on pretty much a few KPIs. I think that would completely derail the thesis to a point where it's just very, very obvious that I'm wrong. So I want to pose this question to you. What would you need to see happen In Xor, that would completely derail the thesis to a point where it's just glaringly obvious that we probably need to sell it.

Speaker A: Yeah, I think it's a great, it's a great question because we can sit here and confirmation bias ourselves all day. And so why it was, uh, we still feel like it was a good decision to buy into exer. Uh, but at the end of the day, if we're sort of taking this open ended bet on exers gap to NAV narrowing, we're signing up for an unknown period of potential pain. And that's not necessarily, uh, a great investing practice. And so if we were to see EXER make really poor allocation decisions, that would definitely be a signal at a high level to me that this just isn't worth the trouble and that the market was right to be pessimistic on their capital allocation ability. Right. And that what that could mean was maybe holding off on buybacks when they've had the chance to buy their own shares at a massive discount in favor of acquiring some business that we deem to be mediocre and then maybe overpaying for it. That would be really disappointing. And that would validate again, the markets thinking that EXER deserves to trade at a discount to nav. Uh, and also we didn't really talk about it today, but there's a lot of family drama with the unyellies who control exer, where you've got actually the mom suing her own son and it's ugly stuff. And well, it's a, it's a low likelihood because the lawsuits do seem to be somewhat spurious. But if we did see John Elkin lose control of the company for whatever reason or be removed as CEO, I mean, that would be a sign that there's just too much going on behind the scenes to justify the investment, in my opinion. So keeping an eye actually on some of the legal dramas in the background here would also be worth doing.

Speaker B: Well, that's all we have for you today, folks. And as usual, I want to leave you with a quote, this one by XOR CEO John Elkat. I learned not to be desperate in bad times, and I'm learning not to be bullish when times are good. So with XOR shares down 24 over the last year, I think John is practicing what he preaches by not making any overly erratic moves. While the market can definitely be very punishing in the short term, if Xor's NAV continues to compound at, uh, its historical rate of about 12 annually, chances are pretty good that the shares will rebound at some point and with some of the extraordinary gains Xor has made in the past with some of the wonderful assets they have today, I think he's taken the right approach today to stay level headed and to continue to provide shareholder value. That's it for today. I'll see you next time.

Speaker A: Just a quick note before you go. This episode would not be possible if it weren't for our friends at Fiscal AI. It's our complete stock research terminal that Daniel and I use on every single episode and with every company we dig into, pooling 20 years worth of financials, digging into segment data, grabbing quotes from the latest earnings calls, and making use of real time institutional grade data all in one place. And if you want to try it yourself, well head to fiscal AI TIVP. That'll include 15% off if you upgrade to a paid plan. That's Fiscal AI tivp. Thanks for listening.

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