FCAU - Fiat Chrysler Automobiles

[LC]

Lot of free call options...brazil, chrysler, maserati, alfa...IMHO ferrari+chrysler alone is worth more than the current price.

 

There was another PDF from DB i think somewhere in this thread with a general comparison of the auto market. Fiat trades at the lowest or second lowest EBITDA multiple.

 

Where is the downside coming from? Europe is already in the fits and has overcapacity issues...an Alfa disaster isn't going to change much there. If Chrysler is at the top of the cycle now (along with other US manufacturers), Fiat's share price has barely reflected it. Maybe it goes down from $7.50->6.50, but then again maybe it can acquire the rest of Chrysler at a cheaper multiple.

 

I see much more upside than downside, combined with great brands, combined with a share price trading at the lowest multiple among peers.

[phil_Buffett]

Lot of free call options...brazil, chrysler, maserati, alfa...IMHO ferrari+chrysler alone is worth more than the current price.

 

There was another PDF from DB i think somewhere in this thread with a general comparison of the auto market. Fiat trades at the lowest or second lowest EBITDA multiple.

 

Where is the downside coming from? Europe is already in the fits and has overcapacity issues...an Alfa disaster isn't going to change much there. If Chrysler is at the top of the cycle now (along with other US manufacturers), Fiat's share price has barely reflected it. Maybe it goes down from $7.50->6.50, but then again maybe it can acquire the rest of Chrysler at a cheaper multiple.

 

I see much more upside than downside, combined with great brands, combined with a share price trading at the lowest multiple among peers.

 

Spin offs of Ferrari, Maserati, and Chrysler provide some downside protection.  The launch of Alfa is the only thing that worries me because I don't really have a basis of evaluation and I probably should read more on it.

 

I do think there are some things that can go wrong here, but if only 1 or 2 of the many things that can go right do go right, I see myself making a lot of money. 

 

absolutely. i share both your opinions. the upside is way higher than the downside. alone the wonderful brands ala chrysler, ferrari and maserati are worth much more then the current market cap.

in the us we have a good Situation. the automakers coming back and we have a lot of old cars on the streets. i think the average is that the cars are 11-12years old. so a lot of new demand. chrysler makes good cars, nice Jeeps and so on. the valuation is so low. it is crazy that tesla was double the value from fiat, short time ago. i love my stake in fiat and think it will ride the next years very very very nice.  :) :)

[goldfinger]

In the pdf of the introductory post Ferrari is valued at 2 billion. That won`t move the needle with an EV of 48 billion. FIAT is highly levered, when there is a liquidation the only ones who potentially get something back are the creditors.

 

Didn't greenwood investors find out that they kept debt unsecured and can divest Ferrari and Chrysler stakes to shareholders whenever they want?

[goldfinger]

Fiat SpA (F IM) represents a rare investment opportunity- one of the few outliers that an investor gets in his career.  In a nutshell, it essentially has about 5x the upside that highly-favored GM has, with less downside risk.  How could this be, since Fiat has industrial net debt as opposed to GM’s industrial net cash position?  The Agnelli Family and venerable CEO Sergio Marchionne (history of turning around SGS SA, Fiat Industrial, Fiat in 2004, and of course Chrysler) have purposefully kept Fiat’s debt structure totally unsecured, with the ability to sell or distribute assets freely.  Last summer, as Italian bond yields were blowing out and there was doubt in the markets as to whether Italy would remain in the eurozone, the company spoke of its plan in a nightmare European scenario, whereby the highly profitable South American operations of Fiat could be sold to Chrysler and European operations simply shut-down to stop the bleeding.  A distribution of Ferrari stock is not restricted by Fiat’s bond indentures, and has been discussed as likely after the merger between Chrysler and Fiat.

 

If one were to ignore the economic nature of the company and value Ferrari using a similar metric to other auto manufacturers, it would be worth ~€ 2.4 billion, however due to the durable and sustainable competitive advantage that Ferrari enjoys, it would be more appropriate to value it similarly to a luxury brand at 9x-10x EBIT. Such multiple would put Ferrari’s value at €3.15bil – € 3.5 bil.

To confirm this valuation, Mubadala Development Company sold a 5% stake in Ferrari back to Fiat SpA at € 122 million in 2010 (at roughly 9x ttm EBIT).

[Sportgamma]

We believe in a Eurozone break-up scenario, current Fiat stockholders will end up owning shares in Ferrari and Chrysler.  Fiat owns 90% of Ferrari, and using the very recent Aston Martin sale valuation, such a stand-alone entity is worth €6.473 billion (Fiat’s 90% ownership is worth €4.79 per Fiat share).  Fiat’s 58.5% stake in Chrysler is currently worth €4.56-8.50 depending on which metric one uses (EBIT or EBITDA) and which entity one uses (Ford or GM).

http://www.gwinvestors.com/Main/Blog/Entries/2013/8/1_Exor_SpA_(EXO_IM)__The_Italians_Are_Coming.html

 

In our meeting with Marchionne last summer, he suggested in a nightmare European scenario, the highly profitable South American operations of Fiat could be sold to Chrysler and European operations simply shut-down to stop the bleeding.  A distribution of Ferrari stock, which alone is worth roughly the same price as Fiat’s stock today (using recent Aston Martin sale metrics), is not restricted by Fiat’s bond indentures, and has been discussed as likely after the merger between Chrysler and Fiat.  The Agnelli family has a recent track record of supporting value-creating corporate actions through the spin-off of Fiat and Fiat Industrial.  That split alone has helped Marchionne generate stock returns of 107% since arriving at the group in 2004, exactly twice the return that famed CEO Alan Mulally has managed at Ford under his own tenure.

http://www.gwinvestors.com/Main/Blog/Entries/2013/5/2_Fiat_SpA_(F_IM)__The_Bottom.html

 

[worldaccordingtoGARP]

There's another source of downside protection and that is in the form of Exor, the holding company of the Agnelli family. Exor is majorly owned by the Agnellis and is operated by the family. Exor is also the largest owner of Fiat equity and they are very well capitalized today. Their equity ownership and capitalization are a source of protection to Fiat, for they recognize the immense value in Fiat's equity. There is the implication that leverage is dangerous because of the increased risk of bankruptcy, though I would argue that even if something were to happen such that the leverage cuts Fiat the wrong way, Exor would be there for the company with capital in order to prevent a bankruptcy (I am thinking above and beyond the slice and dice the company could do given how each piece of debt is unsecured and limited to each relevant subcomponent of Fiat). It would be in their own best interest to do so, for it would protect their existing equity holdings and enable the company to realize the upside it intends to capture in the stock. This backing by Exor is also important in providing flexibility for the inevitable complete acquisition of Chrysler.

[frommi]

Ok, i think i slowly understand whats going on here.

 

According to the latest quarterly report FIAT ex Chrysler has 10.2 billion € net debt, that is mostly unsecured capital market debt which becomes due from 2014-2017.

Ferarri is worth between 3-6 billion €.

FIAT`s Chrysler package is worth between 6-8 billion €.

 

FIAT market cap is 6.65 billion €.

 

So i can think of some possible scenarios:

 

If shit hits the fan:

 

a) Ferrari & Chrylser are spin off, so the marketcap should reflect 9-14 billion €. The bondholders will get nothing. (Who is that?)

b) Ferrari & Chrylser are IPO`d or sold, the bondholders get everything, the stockholders get nothing. Perhaps unlikely, because the holding family is a stockholder. But can we ignore this scenario? (What if the bondholder is the government?)

 

The value of option a) diminishes over time, because the credit lines have to be payed back and i can`t really think that someone is so stupid and give FIAT a new unsecured line of credit.

 

If business is running normal:

 

FIAT standalone current value:

 

EV: 6.65 + 10.2 = 16.85

Ferrari: 3-6

Chrylser: 6-10

 

FIAT standalone: 0.85-7.85 billion €. So dependend on the valuations of Ferrari and Chrylser, FIAT standalone is currently valued between 0.85-7.85 billion €.  Thats sounds not overly undervalued. Is there something wrong with my numbers?

 

 

 

 

 

 

[jay21]

Maserati is worth more than .85b so at least a portion of that range incorporates a negative value for Fiat. 

 

[phil_Buffett]

 

for everybode who dont see the value of maserati  :)

 

Video was very nice, i can watch it all the time.

 

love the undervaluation!!!

[nikhil25]

http://mobile.bloomberg.com/news/2013-12-20/fiat-said-to-restart-negotiations-to-buy-chrysler-stake.html?cmpid=yhoo

[fareastwarriors]

http://mobile.bloomberg.com/news/2013-12-20/fiat-said-to-restart-negotiations-to-buy-chrysler-stake.html?cmpid=yhoo

 

 

glad they are trying to work things out again and hopefully they can play nice.

[phil_Buffett]

http://mobile.bloomberg.com/news/2013-12-20/fiat-said-to-restart-negotiations-to-buy-chrysler-stake.html?cmpid=yhoo

 

hopefully the make now a deal. would be so nice to finally have the Merger and starting the new engine of the new Company.

 

i hope it so much that the make a deal in the next weeks  :)

[LC]

I've learned to not hold my breath. I think a deal will get done eventually. Marchionne said somewhere he doesn't plan on staying on with Fiat past 2015. I think a deal gets done before then and he puts the company on track to start running on all cylinders (I'm surprised it took this long for the car puns to emerge) by the time he steps down.

 

So maybe a deal gets done in 1H 2014 or maybe not, but I think Mr. Marchionne won't leave until a deal is done, but he won't rush a deal either.

[phil_Buffett]

Sergio said at the q3 cc that they will present a new 5 year plan in q1 2014, so i think they will achieve a deal in the next time. and it is my biggest hope.

 

Sergio is a wonderful leader, and he only steps down when the Merger is completed and the Transition is going on, full Speed with all the brands

[merkhet]

I've learned to not hold my breath. I think a deal will get done eventually. Marchionne said somewhere he doesn't plan on staying on with Fiat past 2015. I think a deal gets done before then and he puts the company on track to start running on all cylinders (I'm surprised it took this long for the car puns to emerge) by the time he steps down.

 

So maybe a deal gets done in 1H 2014 or maybe not, but I think Mr. Marchionne won't leave until a deal is done, but he won't rush a deal either.

 

I thought the Elkann said that Marchionne was staying on past 2015.

[LC]

Those were Elkann's most recent words, but I am not sold.

 

Marchionne is 61 and by the time the Chrysler merger finally goes through will have gone through years of creating the 'new Fiat'. Negotiating with the union, dealing with all the Italian & European politics...I think there's a greater chance that, after a Chrysler deal is finalized, he will spend a modest amount of time setting everything up to move forward but then retire. This is just my personal conjecture but I'm not sure if he is the man to spearhead the new Fiat into the future, nor (given his tone on recent conf calls) does he want to be that man.

[investor-man]

Just trying to understand this.

 

Upsides

 

1. FIATY's EV/EBITDA multiple is much less than it's comps (pulled from Yahoo):

 

FIAT: EV/EBITDA = 2.56

GM: EV/EBITDA = 6.81

F: EV/EBITDA = 12.40

TM: EV/EBITDA = 8.57

 

2. It's a fairly good company. It's cars (Fiat and Chrysler) aren't quite as good as GM's but it should still trade at in roughly the same ball park.

 

3. Management is great. They are at about the tail end of a turn around and have refreshed many or most of the cars.

 

4. There is pent up demand in the US economy. The average age of a car in the US is 11 years, which is historically high, and the economy appears to be coming back, so one would think people will look to buy new cars.  This is good for the auto industry as a whole

 

Downsides

 

1. Possible dilution with purchase of larger share of Chrysler. This I don't quite understand. I'm pretty new to this, so I know I'm missing something here. It looks like they will get the shares they want for something like 4 to 4.5 billion. When I look on the balance sheet I see more than enough cash. Why can't they use that? I know I'm missing something if Chanos comments that it's a possible short because he thinks they'll issue more shares to purchase more of Chrysler. Anyone care to comment?

 

2. Alfa Romeo is launching in the US. It's a fairly unknown brand and will take a while to pick up steam.

 

3. Macro situation turns bad. Nuff said.

 

4. They seem to have quite a bit of debt. I need to look into this more. Anyone care to comment?

[brker_guy]

Very good series of stories from Bloomberg:

 

http://www.bloomberg.com/detroitrevival/

[jay21]

2015 Alfa Romeo 4C, a lusty Italian: Motoramic Drives

 

"But the 4C is a tough thing with a clear purpose. Cash-bleeding Alfa Romeo cannot even dream of a global 3- or 5-Series BMW fighter that we all take seriously. So, what do they do? A really tight and well-arranged sports car sexy enough to turn heads, even in mother Italy. The 4C is dynamically just about 100 percent more interesting than the hot mess Alfa called the 8C Competizione. The engine here is in the right place – right behind the passenger cabin – and thus natural balance is in the 4C’s game. Weight distribution fore/aft is at 40/60 percent, so we’ve got a legit rear-drive funhouse on our hands."

 

"I wanted to snuff out some healthy skepticism, so I pushed the 4C extremely hard during my track time. The Alfa representative in the passenger seat during my hottest laps was visibly fretting, whining squeaks coming from his pursed lips, sweat building up on his forehead. When I set the 4C’s setup to Race mode for the final two hard laps, it was like breaking through a barrier at last. Everything on the 4C fell into step, and it was letting me dance through the tight test course. Even the Alfa guy found a sort of inner peace as he saw how well the car and its optional 18-inch Pirelli P Zero tires were doing in my rough Yankee hands.

 

In a full year of 4C production at the Maserati factory in Modena, Italy, the plan is to build 3,500 cars per year with 1,200 of those coming to the United States. Ours are heavier due to several added safety bits like additional airbags, not to mention our typical higher trim levels with more standard features.

 

Everyone wants to say the 4C competes with the Porsche Cayman, but it doesn’t. Then they all want to say, too, that it competes with the Lotus Elise S, which gets closer to the truth. In reality the 4C occupies its own place in the piazza —not as rough as the Lotus and not as refined and sophisticated as the Porsche, while being less expensive than either.

 

But, face it, this toy is mostly about sports car sex appeal. At that, it succeeds like only an Italian can."

 

http://autos.yahoo.com/blogs/motoramic/2015-alfa-romeo-4c-lusty-italian-motoramic-drives-215825876.html

 

If Alfa takes off...

[phil_Buffett]

i like the alfa romeo 4c really much. beatiful car. also a good Price. i hope they sell a lot of it

[ZenaidaMacroura]

http://www.twst.com/update/33502-fiat-spa-fiat-to-acquire-remaining-equity-interests-in-chrysler-group-llc-from-veba-trust

 

ferrari jeeps

[jay21]

http://www.twst.com/update/33502-fiat-spa-fiat-to-acquire-remaining-equity-interests-in-chrysler-group-llc-from-veba-trust

 

ferrari jeeps

 

Awesome.  Pretty good way to structure it too.  No capital raise needed.

[merkhet]

I wonder if the self-funding will cause a ratings downgrade. Also, if my math is right, then Fiat is paying $6.4 billion? Interesting concession to VEBA to pay in $2.8 billion over four years.

[Phaceliacapital]

Nice work guys, thanks to all!

[Ian L]

A happy 2014 indeed.