ValueMaven Posted August 1, 2018 Share Posted August 1, 2018 I mean all of the spin-offs...SOTP valuation, valuation/earnings yield make this thing really interesting.... Link to comment Share on other sites More sharing options...
gokou3 Posted August 1, 2018 Share Posted August 1, 2018 I just increased my position today through LEAPs. Interesting that they handily beat industry sales expectation and still dropped 2%+. Stock has declined 30%+ YTD. Trading at sub-3x 2018e EV/EBIT (Market cap Euro$22B, E$7.5-8B, net cash position) and EBIT is expected to double in the next 5 years. Even if EBIT doesn't grow the current share prices are dirt-cheap. Their 5-yr plan also guided to E$20B of net cash at the end of 2022 assuming no buybacks / Finco capital investment -- close to their current market-cap! Link to comment Share on other sites More sharing options...
TwoCitiesCapital Posted August 2, 2018 Share Posted August 2, 2018 I just increased my position today through LEAPs. Interesting that they handily beat industry sales expectation and still dropped 2%+. Stock has declined 30%+ YTD. Trading at sub-3x 2018e EV/EBIT (Market cap Euro$22B, E$7.5-8B, net cash position) and EBIT is expected to double in the next 5 years. Even if EBIT doesn't grow the current share prices are dirt-cheap. Their 5-yr plan also guided to E$20B of net cash at the end of 2022 assuming no buybacks / Finco capital investment -- close to their current market-cap! Me too. Have been buying since the news of Sergio's passing and the disappointing results took it down. I've also been buying shares. Increased the notional of my exposure via shares and options by 80%. Not that it will always be the case, but I have been rewarded EVERY time I've bought the dip in this name and we're still far too far from reasonable valuations to make me think that is done with. Link to comment Share on other sites More sharing options...
ValueMaven Posted August 2, 2018 Share Posted August 2, 2018 Its amazing how low risk this name really is...this is the not the Fiat of 2011 or 2012... At this point is purely about operational excellence... I would expect news on Magneti Marelli spinoff soon Link to comment Share on other sites More sharing options...
whatdadil9 Posted August 2, 2018 Share Posted August 2, 2018 Intg article re marelli. https://www.prnewswire.com/news-releases/magneti-marelli-signs-an-agreement-aimed-at-the-acquisition-of-smartmeup-a-french-company-focused-on-developing-perception-software-for-autonomous-driving-848358644.html We estimate 8.5bn EUR of Sales. At 7 pct margins around 600m EUR of EBIT --> 720 US. Where does that trade? 10-12x... The valuation for SOTP is here crazy... Link to comment Share on other sites More sharing options...
John Hjorth Posted August 2, 2018 Share Posted August 2, 2018 FCA - Sergio Marchionne - Presentation April 29th 2015: Confessions of a Capital Junkie. In the light of that presentation, isen't a spin-off of Magneti Marelli now not just some financial engineering to release shareholder value short term, at the expense of loosing a lot of earnings going forward long term? Link to comment Share on other sites More sharing options...
orion Posted August 2, 2018 Share Posted August 2, 2018 "Twitter" reporting: #scoop FCA has had several suitors for its auto parts unit, Magneti-Marelli -- valued at $7b -- but co still favors a spinoff, @TEbhardt @kielporter @RuthsDavid report on @TheTerminal $FCAU Link to comment Share on other sites More sharing options...
John Hjorth Posted August 2, 2018 Share Posted August 2, 2018 orion, What's your point with your post? [No sources etc.] Link to comment Share on other sites More sharing options...
orion Posted August 2, 2018 Share Posted August 2, 2018 I linked the source. A tweet by Gabrielle Coppola (Bloomberg reporter) Link to comment Share on other sites More sharing options...
TwoCitiesCapital Posted August 2, 2018 Share Posted August 2, 2018 FCA - Sergio Marchionne - Presentation April 29th 2015: Confessions of a Capital Junkie. In the light of that presentation, isen't a spin-off of Magneti Marelli now not just some financial engineering to release shareholder value short term, at the expense of loosing a lot of earnings going forward long term? I would tend to agree. I would prefer a partial IPO/sale OR an outright sale to turn the ownership position into cash to benefit Fiat going forward instead of separating out the financials for no apparent benefit to the parent co. That being said, if they can't get the appropriate value for it in a sale, maybe a partial spin-out/IPO makes sense so the market begins to reflect the price of the retained stake. Any idea if they spin it out if they would be distributing 100% of their ownership? Seems like there's a case here where they could accomplish a spin-out, get a public market valuation of the Magnetti, AND maintain control of an important source earnings going forward. Everyone wins in this scenario. Link to comment Share on other sites More sharing options...
gokou3 Posted August 2, 2018 Share Posted August 2, 2018 Fiat Favors Car-Parts Spinoff Amid New Approaches https://www.bloomberg.com/news/articles/2018-08-02/fiat-is-said-to-favor-car-parts-spinoff-amid-new-approaches Fiat Chrysler Automobiles NV is for now sticking with plans to spin off its Magneti Marelli unit after fielding interest from potential buyers for the car-part business, which may be valued at as much as 6 billion euros ($7 billion). By spinning off, the Agnelli family still retains control of MM and help keep FCAU's component costs down (and other suppliers honest). On the other hand, if they sell off the unit, they would surface that $6B value immediately. I kinda prefer the latter. Link to comment Share on other sites More sharing options...
whatdadil9 Posted August 2, 2018 Share Posted August 2, 2018 If you are a shareholder in FCA wouldnt you prefer a spin? Doesnt get cash get valued at a discount inside of an OEM.. If they paid a stupid number maybe I would like the cash... but if Im tax sensitive...wouldnt you rather get the shares and see if they can grow that asset... Looks like they just did self driving deal.. maybe they could keep rolling up the space.. Link to comment Share on other sites More sharing options...
Guest Own The Rails Posted August 2, 2018 Share Posted August 2, 2018 If you are a shareholder in FCA wouldnt you prefer a spin? Doesnt get cash get valued at a discount inside of an OEM.. If they paid a stupid number maybe I would like the cash... but if Im tax sensitive...wouldnt you rather get the shares and see if they can grow that asset... Looks like they just did self driving deal.. maybe they could keep rolling up the space.. Yep I'm with you here. Plus from what I can tell FCA doesn't need an extra $6bn of cash... no clear acquisitions for them to make and no need to extinguish debt given they're very close to a net cash position. Add in the same controlling shareholders of both FCA and MM (Mondo Agnelli) and I'm more in favor of IPO. Link to comment Share on other sites More sharing options...
gokou3 Posted August 2, 2018 Share Posted August 2, 2018 I guess I have a "bird in the hand vs. two in the bush" mentality here given the uncertainty with the new leadership, late inning in the industry cycle, etc. If FCA can get $6B Euro cash shortly for MM and uses the proceeds for share buyback, and in the process push the shares toward EV/EBIT > 6, that would make it a relatively quick double for me and I am ok with that. Things like the aspirational goal of $16B EBIT in five years, setting up a finco, etc. are good if they can execute, but again at this stage of the game I am not quite convinced yet and would rather get my returns sooner and move on. Link to comment Share on other sites More sharing options...
whatdadil9 Posted August 3, 2018 Share Posted August 3, 2018 But spinning of Magnetti is getting the return sooner.. .They are not going to buyback at these levels. Their 5 year plan basically tells you that they are going to hoard cash ex the dividends they are paying. the cash will either go to a mega merger or sit on balance sheet/fund finco. I think their view is that buying back shares in a low ROIC biz (even if its improving) is not as good as dividends or investing in mergers which improve the economics of the biz. Longer term I think this biz has the potential to be like Boeing... far less cyclical oligopoly. You saw it with the rail roads too. I think spinning off MM is non core and will create big multiple arbitrage and get a call option on growing another platform.... I dont agree with late cycle. Housing and financials are not stretched... Thats what really took SAAR down in 08/09. Even if we have a 10-15 pct decline in SAAR, we have all the mix shift and latam still rebounding. Remember, jeep grew from 300k to 1.9mm units even though saar only rebounded 50-60 pct.. I think the cycle argument is trite...cant you do better than that? Link to comment Share on other sites More sharing options...
Foreign Tuffett Posted August 3, 2018 Share Posted August 3, 2018 But spinning of Magnetti is getting the return sooner.. .They are not going to buyback at these levels. Their 5 year plan basically tells you that they are going to hoard cash ex the dividends they are paying. the cash will either go to a mega merger or sit on balance sheet/fund finco. I think their view is that buying back shares in a low ROIC biz (even if its improving) is not as good as dividends or investing in mergers which improve the economics of the biz. Longer term I think this biz has the potential to be like Boeing... far less cyclical oligopoly. You saw it with the rail roads too. I think spinning off MM is non core and will create big multiple arbitrage and get a call option on growing another platform.... I dont agree with late cycle. Housing and financials are not stretched... Thats what really took SAAR down in 08/09. Even if we have a 10-15 pct decline in SAAR, we have all the mix shift and latam still rebounding. Remember, jeep grew from 300k to 1.9mm units even though saar only rebounded 50-60 pct.. I think the cycle argument is trite...cant you do better than that? I think everything in bold is way off base. The auto OEMs aren't like Boeing or the railroads. Autos will almost certainly remain cyclical for the foreseeable future. SUVs manufacturers like Jeep are actually somewhat worse, in that they are also highly vulnerable to high oil prices. The cycle argument isn't trite. Lots of very knowledgeable people (aka not value investors who are just "tourists" in the auto sector) think we are in the late innings of the auto cycle + oil prices are on the rise. Why do you think the "Big 3" American auto OEMs are trading so cheaply right now? I think the Big 3 look appealing right now too, but there's no reason to make over-the-top claims. Link to comment Share on other sites More sharing options...
whatdadil9 Posted August 3, 2018 Share Posted August 3, 2018 The reality is: when we go fully autonomous the contract manufcaturing biz is going to be predictable. Foxconn trades at high multiples. Boeing is a good defensible biz bc they take the manufcaturing risk and shoulder risk with FAA, etc. We will shoulder the same risk in the autonomous world. Its hard to fathom but as these businesses consolidate the replacement cost of capital and technological know how create a natural moat around these items. Perhaps im early in my supposition but I genuinely think the economics of these businesses longer term will improve. Krafcik (waymo) comments the other day basically implied that the car companies have a major role in this eco system. I encourage you to read the article bc it also makes argurments for why miles driven will go up.. anyhoo. As it relates to cycle...We are not going backto 08/09 bc of housing/financials/etc... even in mild recessions a 10-15 pct decline in saar is manageable. As it relates to FCA...You have a massive mix/premiumization phenomenon going on.. I think Alfa/Mas is worth at least 7bn today.. the 2022 plan infers 4bn+ of EBIT in 2022 --> discount that howerver you want...the reality is with maserati doing 700 mm of ebit in 2017 you are getting alfa for free at 7bn.. Then you have marelli. Marelli worth at least 7bn. they are getting offers. so 14bn. EV is 21 bn at year end subtract out the 14bn and you are back at 7bn.. I think less then what they paid for chrysler in the bottom of 09.. fancy that. Its easy to be cool and say world is changing but math is math and perhaps we take part in the world changing too.... I think the suvs out of ALFA/MAS, jeep pickup, jeep three row can easily take share in a declining market but at these prices you are not paying for any of that ! QED Link to comment Share on other sites More sharing options...
whatdadil9 Posted August 3, 2018 Share Posted August 3, 2018 Oh in response to F and GM. F is 3 pct margins and will have to spend 10bn on their restructuring we already did. also no culture and no premium brands. one truck company. And trades at 6x ebit. GM. Pension is real liability and they dont expense on income statement like FCA does. Also no premium product/brands really. CEO sells stock as quickly as she can get her hands on it. Communism / agency issue at its best. Should be gutted and rd /procurment expenses should be leveraged. No inside owner or dual class. Needs real activist with deep pockets. Also trades at 3+X the valuation of FCA on ebit and not growing...similar margins. Link to comment Share on other sites More sharing options...
Foreign Tuffett Posted August 3, 2018 Share Posted August 3, 2018 The reality is: when we go fully autonomous the contract manufcaturing biz is going to be predictable. Foxconn trades at high multiples. Boeing is a good defensible biz bc they take the manufcaturing risk and shoulder risk with FAA, etc. We will shoulder the same risk in the autonomous world. Its hard to fathom but as these businesses consolidate the replacement cost of capital and technological know how create a natural moat around these items. Perhaps im early in my supposition but I genuinely think the economics of these businesses longer term will improve. Krafcik (waymo) comments the other day basically implied that the car companies have a major role in this eco system. I encourage you to read the article bc it also makes argurments for why miles driven will go up.. anyhoo. As it relates to cycle...We are not going backto 08/09 bc of housing/financials/etc... even in mild recessions a 10-15 pct decline in saar is manageable. As it relates to FCA...You have a massive mix/premiumization phenomenon going on.. I think Alfa/Mas is worth at least 7bn today.. the 2022 plan infers 4bn+ of EBIT in 2022 --> discount that howerver you want...the reality is with maserati doing 700 mm of ebit in 2017 you are getting alfa for free at 7bn.. Then you have marelli. Marelli worth at least 7bn. they are getting offers. so 14bn. EV is 21 bn at year end subtract out the 14bn and you are back at 7bn.. I think less then what they paid for chrysler in the bottom of 09.. fancy that. Its easy to be cool and say world is changing but math is math and perhaps we take part in the world changing too.... I think the suvs out of ALFA/MAS, jeep pickup, jeep three row can easily take share in a declining market but at these prices you are not paying for any of that ! QED Instead of trying to address everything you wrote (some of which I agree with, some of which I do not), I'm just going to make a general point. Some auto OEM makes and models have staying power, some do not. Many of FCAU's makes appear to me to be on the precipice. Alfa Romeo only returned to the US market in any real way last year. Whether it will be able to expand on the success it had last year is an incredibly open question. Maserati is in a similar position. It wasn't long ago that they were consistently shipping well under 10K vehicles a year globally. As you point out, Maserati was very profitable last year - but I don't think it's appropriate to take the brand's best ever year and slap a multiple on it. Ditto for management's very ambitious 5 year plan. At the risk of coming off as trite, the name of the company is "Fiat Chrysler." And yet, Fiat and Chrysler aren't included among the 4 brands the company plans on emphasizing going forward. I think this is demonstrative of the kind of brand juggling act that the company is (of necessity) having to engage in. Again, I own FCAU and think it's undervalued. But the market isn't thoughtlessly stupid when it prices it at a substantial discount to F and GM. Link to comment Share on other sites More sharing options...
John Hjorth Posted August 3, 2018 Share Posted August 3, 2018 ... I think their view is that buying back shares in a low ROIC biz (even if its improving) is not as good as dividends or investing in mergers which improve the economics of the biz. ... If you study the controlling FCAU shareholder EXOR, again controlled by the Agnelli family holding company since its formation by the merger of IFI and IFIL some years ago, there is to me no doubt, that the long term plan for EXOR is to expand in other areas than FCAU, and EXOR therefore needs the dividends to do that, and to pay down EXOR debt at holding company level. Link to comment Share on other sites More sharing options...
NBL0303 Posted August 4, 2018 Share Posted August 4, 2018 ... I think their view is that buying back shares in a low ROIC biz (even if its improving) is not as good as dividends or investing in mergers which improve the economics of the biz. ... If you study the controlling FCAU shareholder EXOR, again controlled by the Agnelli family holding company since its formation by the merger of IFI and IFIL some years ago, there is to me no doubt, that the long term plan for EXOR is to expand in other areas than FCAU, and EXOR therefore needs the dividends to do that, and to pay down EXOR debt at holding company level. Interesting point. Do you think this means that Exor/Agnelli family would agree to sell the entire company or the core company with MM spun-off? Link to comment Share on other sites More sharing options...
Parsad Posted August 4, 2018 Share Posted August 4, 2018 ... I think their view is that buying back shares in a low ROIC biz (even if its improving) is not as good as dividends or investing in mergers which improve the economics of the biz. ... If you study the controlling FCAU shareholder EXOR, again controlled by the Agnelli family holding company since its formation by the merger of IFI and IFIL some years ago, there is to me no doubt, that the long term plan for EXOR is to expand in other areas than FCAU, and EXOR therefore needs the dividends to do that, and to pay down EXOR debt at holding company level. Interesting point. Do you think this means that Exor/Agnelli family would agree to sell the entire company or the core company with MM spun-off? Almost guaranteed that FCAU is sold at some point by the Agnelli family...especially with Marchionne passing, instead of sitting as Chairman. But they will not give it away...no need, FCAU financially is one of the most solid auto companies in the world now. Strategically, there should be at least 3-4 major parties interested in a deal to continue consolidation of the industry. Cheers! Link to comment Share on other sites More sharing options...
RadMan24 Posted August 4, 2018 Share Posted August 4, 2018 Oh in response to F and GM. F is 3 pct margins and will have to spend 10bn on their restructuring we already did. also no culture and no premium brands. one truck company. And trades at 6x ebit. GM. Pension is real liability and they dont expense on income statement like FCA does. Also no premium product/brands really. CEO sells stock as quickly as she can get her hands on it. Communism / agency issue at its best. Should be gutted and rd /procurment expenses should be leveraged. No inside owner or dual class. Needs real activist with deep pockets. Also trades at 3+X the valuation of FCA on ebit and not growing...similar margins. GM liability going down. How is GM China compared to FCA China? Night and day difference. GM also has cruze, a $1 billion investment now worth at least $11 billion, and could be more in the future if things pan out well. EBIT is projected to grow in 2019 also, with increase in margins. Few people have concerns regarding Mary Barra's capital allocation, maybe excluding the fact they pay too much in dividend and say buy more stock to give more flexibility during recession. FCA, if it gets close to its 2022 goals, will undeniably look cheap af today. Link to comment Share on other sites More sharing options...
cmlber Posted August 4, 2018 Share Posted August 4, 2018 How is GM China compared to FCA China? Night and day difference. Isnt GM China factored into EV/EBIT multiples? So if anything that’s a negative on relative multiples because it means GM has nowhere to go but down and FCAU nowhere to go but up in the worlds largest market. Link to comment Share on other sites More sharing options...
ValueMaven Posted August 4, 2018 Share Posted August 4, 2018 Very interesting collection of articles since 2004 on the company... https://www.breakingviews.com/wp-content/uploads/2018/07/Breakingviews-Marchionne-July-2018.pdf Personally, I am a fan of spinning of MM Link to comment Share on other sites More sharing options...
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