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FCA Wins Applause For Financial Performance

FCA Wins Applause For Financial Performance.

Investors See Lucrative Prospects For Jeep, RAM, Maserati Spin-off.

Investors liked Fiat Chrysler Automobiles’ (FCA) first quarter financial performance, and are getting excited about the lucrative spin-off prospects for workaday SUV and pickup truck brands like Jeep and Dodge Ram, and the upmarket pretenders Maserati and Alfa Romeo.

FCA’s EBIT (earnings before interest and tax) advanced to €1.54 billion in the first quarter from €1.38 billion in the same period last year, and confirmed its target of at least €7 billion for the whole year. U.S. earnings rose only marginally, to €1.24 billion, but this came on lower revenues as some lines were being shut down. FCA is phasing out the Dodge Dart and Chrysler 200 saloons as it switches to more profitable SUVs.

The jury is out on the prospects for the U.S. market, which has been establishing records but is deemed as being ready to slip, slide or crash, depending on your point of view.

Barclays Equity Research is feeling comfortable about FCA’s prospects.

“We believe Q1-2017 could be the low point in terms of margins while the second half is highly likely to be better than the first. The company didn’t seem too worried about market conditions in the U.S. but is watching them carefully,” Barclays analyst Alexis Albert said.

“Overall, we came out of the meeting (with FCA top brass) quite positive and reassured,” Albert said.

Morgan Stanley analyst Adam Jonas said the first quarter was better than expected, and he liked FCA’s concentration on eliminating models that don’t make money like Dodge and Chrysler saloons, saying it was doubling down on investing in brands that benefit current fashion with higher margins like Jeep, RAM and Maserati.

Jonas asked FCA CEO Sergio Marchionne at a meeting after the results announcement if brands like Jeep and RAM could stand alone, like spun-off Ferrari, and his unequivocal reply “Yes”, prompted some excitement which also included Maserati and Magneti Marelli. Jonas also thinks FCA is well positioned to exploit any dilution of fuel economy regulations by the Trump administration, and passage of a tax cut package.

“The ability of FCA management to isolate, ring-fence and monetize these assets can have a significant impact on the value preservation and upside potential of the equity. In the meantime we identify FCA as one of the best positioned global manufacturers to the new administration in the U.S. in terms of exposure to deregulation (EPA), improved petro-economy and potential stimulus to U.S. tax payers,” Jonas said.

Investment researcher Evercore ISI described FCA’s performance as “reassuring” for investors.

“Q1 demonstrates FCA’s ability to improve earnings in NAFTA through mix, even on lower volumes and in a more competitive market,” said Evercore ISI analyst George Galliers.

Galliers said FCA is the cheapest stock in its portfolio giving it a strong yield.

“We continue to believe FCA represents one of the most attractive equity stories in our space,” Galliers said.

Alfa Romeo
Barclays’ Albert said at the results meeting that FCA was happy with Alfa Romeo’s progress, and could breakeven by the end of 2017.

“We understand that ultimately FCA doesn’t see why Alfa could not be a double digit margin brand. We think Alfa will focus on midsize cars, but we aren’t sure there is room for small cars such as the Mito that would really only sell in Europe while Alfa needs global models to be profitable. It seems that Alfa and Maserati are going to be cooperating more and more. Longer term, we wouldn’t be surprised to see shared dealerships, especially outside Europe and one day to see one single line of reporting for sales and EBIT,” Albert said.

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