FCA Stock Dives On Worries About Life After Marchionne.
“Often, if a highly successful manager leaves – like (Alan) Mulally at Ford Motor – the company doesn’t function as well
Fiat Chrysler Automobiles (FCA) investors showed what they thought of the company’s much heralded 5-year plan by dumping the stock, spooked by the absence of storied and retiring CEO Sergio Marchionne from next year, and the lack of an obvious successor.
According to Reuters’ data, FCA shares dived from a high of 20.15 euros early Friday to a close of 18.33 after the 7-hour meeting held near Turin, Italy.
At the meeting, FCA said it would triple profits by 2022, invest in electric vehicles, and refocus its major brands like Jeep, Ram trucks, Alfa Romeo and Maserati.
Perhaps what he didn’t say irked investors, who had been expecting at least a hint at who would take over from Marchionne when he retires next year. Some also hoped that the long-expected spin-off of Alfa Romeo/Maserati, or even Jeep, might soon be on the cards. Dreamers might have seen a vision of Marchionne’s planned merger with General Motors, but no luck there either.
Professor Ferdinand Dudenhoeffer, director of the Center for Automotive Research (CAR) at the University of Duisburg-Essen, thought the severe stock market reaction was because of a lack of confidence in FCA after Marchionne.
“Often, if a highly successful manage leaves – like (Alan) Mulally at Ford Motor – the company doesn’t function as well and investors are worrying that this will happen with Fiat Chrysler,” Dudenhoeffer said.
Dudenhoeffer also felt FCA’s sudden embrace of electric cars was too late, and Fiat’s lack of SUVs would together cripple any plans to succeed in China, the world’s biggest market. He liked the belated move to set up a U.S. financing company. The link with Google’s Waymo on autonomous cars was promising.
Investment researcher Evercore ISI was puzzled by the stock market’s negative reaction.
“We were surprised at the negative share price reaction as a FCA’s capital markets day drew to a close. The company set ambitious targets which should result in positive earnings revisions across the board,” said Evercore ISI analyst George Galliers.
Galliers thought this might have been triggered by lack of progress on false expectations about the Alfa Romeo/Maserati float or worries about Marchionne’s successor.
Bernstein Research analyst Max Warburton also thought speculation about the CEO succession might have spooked investors.
“Until we learn more about who is actually going to run this thing, it’s rather hard to judge the plan or give a view on the stock,” Warburton said.
Huge cash flow
“The aim is to boost margins in every region – in some cases massively; to grow Jeep by over 50%, to grow Alfa over 150% to 400,000, to grow Maserati 100% to 100,000, to electrify big chunks of the product range, to close the gap in other technology and to generate huge cash-flow – about 3.5 to 4 billion euros ($4.7 billion) near term, climbing to 8 billion euros ($9.4 billion) in 2022 and building a near 20 billion euro ($23.5 billion) cash pile,” Warburton said.
Warburton rates the stock “Market-Perform”.
Citi Equities Research rates FCA “neutral” and wasn’t convinced by the plan.
“With ambitious targets come questions around their achievability,” said Citi analyst Raghav Gupta-Chaudhary.
“This (stock price fall) could reflect disappointment that neither the expected CEO succession plan nor Alfa and Maserati merger materialized,” Gupta-Chaudhary said.
UBS, which is also “Neutral” on the stock, thought the Jeep, Alfa Romeo and Maserati targets were overly aggressive.
“The envisaged growth in Jeep’s global market share from about 6% to close to 8% in a growing yet highly competitive segment is very ambitious, not least because the ambitions in the fastest-growing Chinese market haven’t worked out so far. More than doubling sales in premium to 500,000 – Maserati + Alfa – despite being somewhat behind the leaders in electrification and automated driving looks equally challenging,” UBS analyst Patrick Hummel said.
But he liked the overall business plan which even if it falls short of the big targets will boost profit performance, and might make it a takeover target.
“Further, the business plan sharpens FCA’s profile as a potentially attractive partner for further industry consolidation,” Hummel said.
At the meeting Friday, Marchionne said all the internal candidates to succeed him will own the plan as much as he does. The stock market performance suggests that investors think otherwise. On Monday the stock price was still lingering at the lows at just over 18 euros.
Last month Morgan Stanley said it wouldn’t be surprised if Marchionne lingered on in some way and to get the 2022 targets off to a good start it would please investors if he stayed on perhaps as Chairman.
The stock price might react favourably if Marchionne stayed for a bit longer.