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FCA Stock Price Performance In Roller-Coaster Mode

FCA Stock Price Performance In Roller-Coaster Mode.

Financial Results Impress, Then Doubts Set In.
Reports Of Talks With Google Add To Volatility.
Chairman Elkann Also Revives Merger Talk.

Fiat Chrysler Automobiles (FCA) reported nearly doubled operating profit in the first quarter, but investors, initially happy, lost confidence when they noted debt had jumped sharply too.

Operating profit advanced to €1.38 billion in the first quarter from €700 million a year ago, but net industrial debt rose to €6.6 billion from €5.05 billion at the end of 2015.

The profit margin in North America doubled to 7.2 per cent, while in Europe it rose four times to 1.9 per cent compared with the same period last year.

FCA said it would cut debt by the end of the year to under €5 billion, while earnings before interest and tax (EBIT) for the year would be more than €5 billion compared with €4.8 billion in 2015, which included spun-of Ferrari.

FCA shares were steady after the profit announcement, but dropped three per cent when the debt position was realised. The shares climbed steadily for a couple of days before plunging again, this time by 3.8 per cent, after reports in the Wall Street Journal that FCA was in talks with Alphabet, Google’s parent company on a technology cooperation agreement to make autonomous cars. Neither company confirmed the reports.

Hidden value
The stock price might have plunged on the Google news, but investment bank Morgan Stanley likes FCA and recommends investors buy the shares, mainly because it sees hidden value in some of the brands like Jeep, Ram and Maserati. A deal between FCA and Google would mark an important shift in the evolution to shared, autonomous, electric transport.

“One possible outcome is a future devoted to large-scale contract manufacturing of the autonomously driven mobile computing electric transport capsules formerly known as automobiles,” Morgan Stanley analyst Adam Jonas said.

“FCA has directed little if any investment in developing its own proprietary electric or autonomous technologies or investments in shared mobility. With this in mind, it seems logical that they would be one of the early collaborators with outside firms more aggressively pursuing these disciplines,” Jonas said.

He said Google will probably not want to make vehicles, but supply enabling software and mapping.

“It is likely (Google) is much more interested in monetizing opportunities in content and data that could emerge in a shared autonomous ecosystem. As a willing and able partner, FCA could help (Google) by taking care of the asset-heavy demands of their mission,” Jonas said.

Swings, roundabouts
Meanwhile Jonas wasn’t fazed by the FCA debt problem, saying it will soon swing back, leaving it at around €5 billion. He acknowledge FCA’s relatively weak balance sheet, but reckoned this was well understood by the stock market. Jonas’s “overweight” rating on the shares came despite saying FCA’s targets were unobtainable.

“FCA’s 2018 targets include an adjusted EBIT range of €8.7 to €9.8 billion – several billion euros above our current forecasts and materially above even our bull-case estimates. We view these targets as ‘aspirational’ in nature and meant more as an instrument of motivation to drive internal performance at the group,” Jonas said.

Meanwhile FCA Chairman John Elkann revived the idea that the company should merge with what he called one of the industry’s “big guys”. FCA CEO Sergio Marchionne, who flirted with and was spurned by General Motors, said Toyota, Volkswagen and Ford could be potential merger candidates. According to Reuters, Marchionne said this to journalists after the annual meeting in Amsterdam.

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