FCA Has Its Problems But Investors Warm To Jeep Spinoff Idea.
Life After Sergio, Huge Debt Are Worries.
Fiat Chrysler Automobiles (FCA) is a laggard in electrification, its debt looms large, and iconic CEO Sergio Marchionne will be leaving in just over a year but investors are rallying to the cause as profits advance as do forecasts for future ones.
Another attractive factor for investors is the possibility of FCA floating off the Jeep subsidiary, as the Ferrari sale last year gains respect for effectiveness.
In the second quarter FCA operating profit increased 15 per cent to $2.19 billion compared with the same period last year. Maserati was a standout with earnings before interest and taxes (EBIT) nearly four times bigger at $178 million. Net debt fell 18 per cent to $4.91 billion.
Morgan Stanley raised its earnings per share forecast increases to 12, 15, and 15 per cent for 2018, 2019 and 2019. It forecast net debt will fall to $2.3 billion by the end of 2018, down from its previous expectation of $6.5 billion.
Morgan Stanley also wants FCA to follow the Ferrari example and float off Jeep, which it says might achieve its ambition of sales of at least 2 million by 2018.
On the cards
Investment bank Jefferies likes the progress being made and also seems to think some kind of spinoff might be on the cards.
“Solid earnings, better diversification than U.S. peers and a CMD (capital markets day) planned for the second half of 2018 to set new financial targets and possibly reshape the group are more than enough in our view to keep equity markets engaged in the FCA story,” said Jefferies analyst Philippe Houchois.
Houchois raised 2017 EBIT estimates by 3 per cent.
Citi Research liked the success of Jeep, the renewal of SUVs and pickups, the exit from the U.S. sedan market, Alfa’s revival and progress on debt.
“The balance sheet is still levered at what many fear is the peak of the U.S. cycle. There is a pending DoJ (U.S. Department of Justice) case, an unknown new CEO in 2019 and FCA’s realization that electric vehicles are unavoidable to meet CO2 targets. We think that means the net debt will continue to disappoint. We remain sellers (of the stock),” said Citi analyst Michael Tyndall.
Meanwhile, Morgan Stanley has taken another look at the independent values of FCA member companies, and estimates Jeep is worth €23 billion, or 150 per cent of the entire company’s market capitalisation. Maserati, which will pioneer FCA’s electrification and be all electric by 2019, is valued at €5.1 billion and Marelli and Comau components €3.5 billion. RAM scored €10 billion. Negative values were give to Alfa Romeo – €2 billion, Dodge €1.5 billion and Chrysler €2.5 billion. Fiat excluding Fiat Commercial was rated zero.