Full Merger With Chrysler Expected This Year
“No-one seems to be able to crush costs like Fiat, even if it means freezing future products”
Fiat’s European losses for 2012 came in as expected at €738 million, compared with 2011’s red number of €897 million, and investors saw some positive signs as CEO Sergio Marchionne clears the decks for one last push to complete the takeover of Chrysler.
Marchionne said he does not expect any deterioration in Europe’s performance this year.
Fiat-Chrysler reported a pre-tax profit of €2 billion for 2012. “But the black ink was solely thanks to 58.5 per cent-owned affiliate Chrysler,” said the Financial Times’ Lex column.
“Nor is this likely to change much in 2013. Fiat expects net profit for the group overall to be €1.2 to €1.5 billion – so flat at best. True, a moribund European car market is largely outside Fiat’s control. Italy’s political uncertainty, meanwhile, hardly facilitates domestic capacity cuts, although the company is achieving some flexibility through temporary lay-off schemes,” Lex said.
Bernstein Research analyst Max Warburton saw much to admire in Fiat’s results, although he noted a big increase in Chrysler’s pension underfunding.
“We remain constructive on Fiat. A full merger with Chrysler will result in a surge of EPS (earnings per share) as the minority (VEBA) is eliminated. A merger will over time allow the companies to share cash and result in a much better capitalised business. We also see significant profit levers in the medium term – Maserati expansion, Jeep expansion, China expansion, full Ram pickup recovery,” Warburton said.
Warburton said Fiat’s European losses had virtually halved compared with the third quarter of 2012 and fourth quarter of 2011.
“A remarkable development given the market environment. No-one seems to be able to crush costs like Fiat, even if it means freezing future products,” Warburton said.
Warburton expects the current court case, in which a judge is arbitrating on a difference of opinion on the value of two 3.3 per cent incremental stakes in Chrysler that Fiat is buying from the union holding company VEBA, will soon be decided. Fiat will have to decide how to pay for the rest of Chrysler. Warburton believes the sale of Ferrari is most likely.
Meanwhile Lex pointed out that Fiat’s share price is starting to look unrealistically high.
“In the meantime, Fiat shares, up 35 per cent over the last two months, already trade on nine times 2013 earnings. That is on a par with BMW and higher than VW. Too far, too fast,” Lex said.
Neil Winton – February 1, 2013