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FCA Investors Facing Up To A Marchionne-Free Future

FCA Investors Facing Up To A Marchionne-Free Future.

“Will an independent FCA still exist in 2-3 years, and is making FCA CO2 compliant in Europe by 2021 worth the cost”

Investors are starting to glance nervously at Fiat Chrysler Automobiles (FCA) upcoming strategy meeting on June 1 in Balocco near Turin, which also promises to reveal the 2022 targets, and CEO Sergio Marchionne’s succession plan before his retirement.

Because of Marchionne’s track-record, investors are jostling for position to make sure they don’t miss out on the likely fireworks that the meeting will provide.

Meanwhile, in the first quarter, FCA reported operating profit up 5 per cent to €1.61 billion, with positive results in Europe offsetting lower profits in North America. Delays in the production of the new Ram 1500 pickup have increased costs. Net debt fell to €1.3 billion.

The most important decision expected at the June 1 meeting will be the naming of Marchionne’s successor, although Morgan Stanley wouldn’t be surprised if he lingered on in some way.

Morgan Stanley reckons there is currently no clear Marchionne succession plan and to get the 2022 targets off to a good start it would please investors if he stayed on. Investors would be reassured if big decisions over the future of Jeep and Maserati/Alfa Romeo and their possible spin-offs were to be presided over by Marchionne in some way.

“We see strategic value in many of FCA’s brands that ultimately may require the steady hand of the same leader who, potentially more than anybody, was responsible for putting these brands and businesses in the position they occupy today,” Morgan Stanley analyst Adam Jonas said.

It sounds as though investment researcher Jefferies is getting quite depressed about the prospects of a change at the top.

Two elephants in the room
“FCA has been a truly exceptional stock for the past 15 years thanks to management vision and spunk, which will fade away in the course of 2018, turning the company into a more “normal” manufacturer. Meaningful upside (in the share price) from here looks increasingly dependent on FCA’s ability to deliver supernormal profits or black swan events such as an M&A exit,” Jefferies analyst Philippe Houchois said.

There will be two big elephants in the room in Balocco.

“Will an independent FCA still exist in 2-3 years, and is making FCA CO2 compliant in Europe by 2021 worth the cost,” Houchois said.

Bernstein Research analyst Max Warburton tried to focus on closer targets, saying that for 2018, the EBIT (earnings before interest and tax) target looks hugely ambitious. The target for 2018 is at least €8.7 billion and the first quarter delivered barely 19 per cent of that.


 

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