Jump to content

FCAU - Fiat Chrysler Automobiles

LC

By LC
in Investment Ideas

 Share

Recommended Posts

  • 2 months later...
  • Replies 3k
  • Created
  • Last Reply

Top Posters In This Topic

Popular Days

Top Posters In This Topic

Popular Days

Posted Images

  • 3 weeks later...
marcosc Newbie

marcosc

Posted
Posted

West Virginia University Researchers Find Fiat Chrysler Diesel-Emissions Discrepancies

WVU says 2015 Ram Diesel trucks emissions up to 25 times above U.S. standards

 

https://www.wsj.com/articles/west-virginia-university-researchers-find-fiat-chrysler-diesel-emissions-discrepancies-1497373409

 

Market reaction seems pretty muted.

 

There's only so many times a stock price can adjust for the same information...

Link to comment
Share on other sites
Shooter MacGavin Newbie

Shooter MacGavin

Posted
Posted

I've owned FCAU for a little while, and followed it for a few years prior to that.  Recently, I heard both Pabrai and Bill Miller talk about  a $4.50 EPS in 2018,as per FCAU's 2018 business plan.  But their business plan doesn't call for $4.50 USD per share.  In fact, I think Pabrai was saying like $5.50 or more. (according to a Boston College talk in Nov 16 I believe)

 

At the high-end of Adj. Profit, they are guiding for EUR5.5B, ~ $6.16B.  Over 1.55B shares (fully diluted), and you're barely getting to $4.00 in Adj. EPS.  I do think they'll come in higher because they're probably being conservative on both the Adj. EBIT as well as their financing costs.  But still, that's a decent leap from  ~$3.95 to ~$4.50 EPS.  Anyone know why both conclude FCAU is guiding to $4.50?  Seems the Euro had depreciated a bit in Feb (when Bill Miller told CNBC this) but is back to around $1/.90 EUR.  I'm just wondering if I'm miscounting something, or if these guys are just being optimistic instead of conservative.  or maybe they're were using a higher USD/Eur exchange ratio. 

 

Maybe the biggest swing factor has to do with how conservative they're being on the walk from Adj. EBIT to Adj. Profit in terms of financing costs paid.

 

Thank you

Link to comment
Share on other sites
TwoCitiesCapital Newbie

TwoCitiesCapital

Posted
Posted

I've owned FCAU for a little while, and followed it for a few years prior to that.  Recently, I heard both Pabrai and Bill Miller talk about  a $4.50 EPS in 2018,as per FCAU's 2018 business plan.  But their business plan doesn't call for $4.50 USD per share.  In fact, I think Pabrai was saying like $5.50 or more. (according to a Boston College talk in Nov 16 I believe)

 

At the high-end of Adj. Profit, they are guiding for EUR5.5B, ~ $6.16B.  Over 1.55B shares (fully diluted), and you're barely getting to $4.00 in Adj. EPS.  I do think they'll come in higher because they're probably being conservative on both the Adj. EBIT as well as their financing costs.  But still, that's a decent leap from  ~$3.95 to ~$4.50 EPS.  Anyone know why both conclude FCAU is guiding to $4.50?  Seems the Euro had depreciated a bit in Feb (when Bill Miller told CNBC this) but is back to around $1/.90 EUR.  I'm just wondering if I'm miscounting something, or if these guys are just being optimistic instead of conservative.  or maybe they're were using a higher USD/Eur exchange ratio. 

 

Maybe the biggest swing factor has to do with how conservative they're being on the walk from Adj. EBIT to Adj. Profit in terms of financing costs paid.

 

Thank you

 

Seems like you simply forgot the currency adjustment because they're already near $4.50 at the higher end of they're guidance range with the numbers you provided.

 

At the high-end of Adj. Profit, they are guiding for EUR5.5B, ~ $6.16B.  Over 1.55B shares (fully diluted), and you're barely getting to $4.00 in Adj. EPS.

 

That's EUR 3.50 - 3.97 per share given your ranges. EUR/USD is now at $1.11 so your new range becomes $3.90 - $4.41 EPS. So $3.90 - $4.40 per share paired with the fact that you believe they're being conservative and $4.50/share doesn't seem so far out of reach.

Link to comment
Share on other sites
whatdadil9 Newbie

whatdadil9

Posted
Posted

I think 7.5b over 1.5bn shares is 5.00 USD. If exchange goes higher maybe you get more or they beat on EBIT....

 

Also, dont forget if you get a spin of parts / alfa romeo/maserati going to be creating the remaining asset at an even lower mulitple.

 

2x EPS + call option on more spins + still chance they crystallize the 10bn of EBIT merger synergies seems to0 cheap....the spring is coiling into end of  year is my feel.

 

I think we finish 15-16 USD ...maybe higher.

Link to comment
Share on other sites
Shooter MacGavin Newbie

Shooter MacGavin

Posted
Posted

I've owned FCAU for a little while, and followed it for a few years prior to that.  Recently, I heard both Pabrai and Bill Miller talk about  a $4.50 EPS in 2018,as per FCAU's 2018 business plan.  But their business plan doesn't call for $4.50 USD per share.  In fact, I think Pabrai was saying like $5.50 or more. (according to a Boston College talk in Nov 16 I believe)

 

At the high-end of Adj. Profit, they are guiding for EUR5.5B, ~ $6.16B.  Over 1.55B shares (fully diluted), and you're barely getting to $4.00 in Adj. EPS.  I do think they'll come in higher because they're probably being conservative on both the Adj. EBIT as well as their financing costs.  But still, that's a decent leap from  ~$3.95 to ~$4.50 EPS.  Anyone know why both conclude FCAU is guiding to $4.50?  Seems the Euro had depreciated a bit in Feb (when Bill Miller told CNBC this) but is back to around $1/.90 EUR.  I'm just wondering if I'm miscounting something, or if these guys are just being optimistic instead of conservative.  or maybe they're were using a higher USD/Eur exchange ratio. 

 

Maybe the biggest swing factor has to do with how conservative they're being on the walk from Adj. EBIT to Adj. Profit in terms of financing costs paid.

 

Thank you

 

Seems like you simply forgot the currency adjustment because they're already near $4.50 at the higher end of they're guidance range with the numbers you provided.

 

At the high-end of Adj. Profit, they are guiding for EUR5.5B, ~ $6.16B.  Over 1.55B shares (fully diluted), and you're barely getting to $4.00 in Adj. EPS.

 

That's EUR 3.50 - 3.97 per share given your ranges. EUR/USD is now at $1.11 so your new range becomes $3.90 - $4.41 EPS. So $3.90 - $4.40 per share paired with the fact that you believe they're being conservative and $4.50/share doesn't seem so far out of reach.

 

actually I translated already.  the 5.5B EUR (high end of range) is $6.16B in USD.  over 1.550B share count = $3.97 Adj. EPS at the high end of the guided range.

 

I think the answer probably lies in what I hypothesized but was supported above by whatdadil9.  It's that the implied guidance for interest expense/tax expense (not broken out) from their Adj. EBIT guidance to their Adj. Profit guidance is unrealistically high.  If they're at net cash of $5B EUR in 2018 from a Net Debt of $5B, it means their debt is down by ~$10B EUR. 

 

Link to comment
Share on other sites
Shooter MacGavin Newbie

Shooter MacGavin

Posted
Posted

I think 7.5b over 1.5bn shares is 5.00 USD. If exchange goes higher maybe you get more or they beat on EBIT....

 

Also, dont forget if you get a spin of parts / alfa romeo/maserati going to be creating the remaining asset at an even lower mulitple.

 

2x EPS + call option on more spins + still chance they crystallize the 10bn of EBIT merger synergies seems to0 cheap....the spring is coiling into end of  year is my feel.

 

I think we finish 15-16 USD ...maybe higher.

 

 

Agree. Even better is  think this is likely a $30-$40 stock in early 2019 without a spin at higher than auto multiples  for Maserati and Parts.

 

I wish I had another name as high upside as this!

Link to comment
Share on other sites
Shooter MacGavin Newbie

Shooter MacGavin

Posted
Posted

was just going back over the math. 

 

the group's effective tax rate has been around 39% in 2016 and 1Q17, right?  I know there's moving parts in there since NAFTA has the highest effective rate and there's China deconsolidation etc and growth from Europe.  But with a 39% tax rate, I don't get there on $4.50 USD in EPS.  Am I missing something on the taxes?

Link to comment
Share on other sites
whatdadil9 Newbie

whatdadil9

Posted
Posted

So the tax rate is basically mid to high 30s TODAY. But what happens when you get China JV going, Europe going, and LATAM going. In talking with IR, it seems that a blended tax of 30 or lower is reasonable...I also think you are doing the conversion twice. I convert from EURO to USD at the EBIT level and just run the math down. If you have 7.5 of USD AFTER TAX NET PROFIT FROM 10BN USD EBT...I GET TO 5.00 USD EPS.

 

If currency strengthens its kind of a toss up. Do you get more or less USD earnings? Not sure how that plays out exactly...guess it depends on mix of geographys.

 

My point is that at the high end of their EBIT range you get to 5.00 USD EPS assuming no other value realizations. P.S. apparently Comau is worth alot also and is kinda under earning. most people are ascribing zero value to that. But my back of the envelope math is that Alfa / Mas can do 1,500 EURO EBIT pretty easily. On the roadshows, Palmer/serge have been pretty clear that 1 BN EUR EBIT for Maserati prob is a short/intermediate term target. I think even is an underwhelming scenario if Alfa doe 500mm EURO of EBIT its prob a "miss" for the team and for the street. That being said, these two brands go together and 1.5bn EURO EBIT at 8x is 12bn EUR of Value or 13 + BN USD. I could easily make arguments that the biz is worth 10x given what its prob worth to a strategic.

 

I think one potential scenario for parts and alfa / mas is a "SPIN/MERGE" scenario ala FIAT INDUSTRIAL / CNH. Selling for cash these assets to a private equity / strategic just makes the cash go into the "black hole". The market seems to value auto company balance sheets at a zero or even negative value because of the working capital dynamics. I think this is disingenuous and the fair thing to do is take an average cash balance on "normalized" auto sales not peak or trough. But be that as it may,  if one were to spin parts into a strategic you would not have to pay tax (or agnellis/serge) you would get the benefit of shared scale/cost /revenue synergies and trade with a public market multiple. It looks like Tata has been in the press saying they might spin Land Rover / Jag. Why not merge that with Alfa/Mas. Would be nice combo. Alternatively VW could spin some of their luxury brands that are not core to the platform into lux co. Lambo, bugatti, bentley. Wouldnt be crazy...  I think before the samsung thing went down that was what the team was working towards thru a potential "jv". I think they were going to create a spin - merge with one of samsungs subsidiaries. Instead Samsung bought harman and then the kid who was on the board got in trouble.. series of unfortunate events.

 

Also, Ram especially after product reallignement is prob big enough to float on its own. What will that do 1.5bn -2bn of EBIT. I think I think it was doing greater than 1 before..have to check. Not a ton of shared platforms on RAM. Also can have arms length R&D sharing agreement ala nissan/renault. There seem to be alot of different ways to win here. I think the  math on the merger is too compelling though. 10bn of savings split two ways is 5bn each. Assume you get a little mutliple expansion from consolidation and its like 50bn of USD value per company maybe more thats 35 USD value in merger synergies. Too big to ignore.

 

Also, Sergio mentioned in venice that the emissions stuff will have no effect on 2018 plan. if you parse thru that carefully and I have confirmed with IR, the balance sheet is part of the 2018 plan/targets. That means serge does not expect any material fines/cash outflow from the EPA thing. The market seems to be overly focused on this given precedent with VW but I think its a non event. The fix is a flash update given all FCA's vehicles have SCRs. VW implenmentation of the fix and buybacks where was the lionshare of the penalties from... also many more cars. I think Sergio is taking this to task instead of paying a small fine so he can put the dark cloud to bed finally and for good.

 

Lot to like here if you are patient.

Link to comment
Share on other sites
TwoCitiesCapital Newbie

TwoCitiesCapital

Posted
Posted

I've owned FCAU for a little while, and followed it for a few years prior to that.  Recently, I heard both Pabrai and Bill Miller talk about  a $4.50 EPS in 2018,as per FCAU's 2018 business plan.  But their business plan doesn't call for $4.50 USD per share.  In fact, I think Pabrai was saying like $5.50 or more. (according to a Boston College talk in Nov 16 I believe)

 

At the high-end of Adj. Profit, they are guiding for EUR5.5B, ~ $6.16B.  Over 1.55B shares (fully diluted), and you're barely getting to $4.00 in Adj. EPS.  I do think they'll come in higher because they're probably being conservative on both the Adj. EBIT as well as their financing costs.  But still, that's a decent leap from  ~$3.95 to ~$4.50 EPS.  Anyone know why both conclude FCAU is guiding to $4.50?  Seems the Euro had depreciated a bit in Feb (when Bill Miller told CNBC this) but is back to around $1/.90 EUR.  I'm just wondering if I'm miscounting something, or if these guys are just being optimistic instead of conservative.  or maybe they're were using a higher USD/Eur exchange ratio. 

 

Maybe the biggest swing factor has to do with how conservative they're being on the walk from Adj. EBIT to Adj. Profit in terms of financing costs paid.

 

Thank you

 

Seems like you simply forgot the currency adjustment because they're already near $4.50 at the higher end of they're guidance range with the numbers you provided.

 

At the high-end of Adj. Profit, they are guiding for EUR5.5B, ~ $6.16B.  Over 1.55B shares (fully diluted), and you're barely getting to $4.00 in Adj. EPS.

 

That's EUR 3.50 - 3.97 per share given your ranges. EUR/USD is now at $1.11 so your new range becomes $3.90 - $4.41 EPS. So $3.90 - $4.40 per share paired with the fact that you believe they're being conservative and $4.50/share doesn't seem so far out of reach.

 

actually I translated already.  the 5.5B EUR (high end of range) is $6.16B in USD.  over 1.550B share count = $3.97 Adj. EPS at the high end of the guided range.

 

I think the answer probably lies in what I hypothesized but was supported above by whatdadil9.  It's that the implied guidance for interest expense/tax expense (not broken out) from their Adj. EBIT guidance to their Adj. Profit guidance is unrealistically high.  If they're at net cash of $5B EUR in 2018 from a Net Debt of $5B, it means their debt is down by ~$10B EUR.

 

Yes, my apologies. Misread your post as ranges and not a translation from EUR to USD.

Link to comment
Share on other sites
Shooter MacGavin Newbie

Shooter MacGavin

Posted
Posted

So the tax rate is basically mid to high 30s TODAY. But what happens when you get China JV going, Europe going, and LATAM going. In talking with IR, it seems that a blended tax of 30 or lower is reasonable...I also think you are doing the conversion twice. I convert from EURO to USD at the EBIT level and just run the math down. If you have 7.5 of USD AFTER TAX NET PROFIT FROM 10BN USD EBT...I GET TO 5.00 USD EPS.

 

If currency strengthens its kind of a toss up. Do you get more or less USD earnings? Not sure how that plays out exactly...guess it depends on mix of geographys.

 

My point is that at the high end of their EBIT range you get to 5.00 USD EPS assuming no other value realizations. P.S. apparently Comau is worth alot also and is kinda under earning. most people are ascribing zero value to that. But my back of the envelope math is that Alfa / Mas can do 1,500 EURO EBIT pretty easily. On the roadshows, Palmer/serge have been pretty clear that 1 BN EUR EBIT for Maserati prob is a short/intermediate term target. I think even is an underwhelming scenario if Alfa doe 500mm EURO of EBIT its prob a "miss" for the team and for the street. That being said, these two brands go together and 1.5bn EURO EBIT at 8x is 12bn EUR of Value or 13 + BN USD. I could easily make arguments that the biz is worth 10x given what its prob worth to a strategic.

 

I think one potential scenario for parts and alfa / mas is a "SPIN/MERGE" scenario ala FIAT INDUSTRIAL / CNH. Selling for cash these assets to a private equity / strategic just makes the cash go into the "black hole". The market seems to value auto company balance sheets at a zero or even negative value because of the working capital dynamics. I think this is disingenuous and the fair thing to do is take an average cash balance on "normalized" auto sales not peak or trough. But be that as it may,  if one were to spin parts into a strategic you would not have to pay tax (or agnellis/serge) you would get the benefit of shared scale/cost /revenue synergies and trade with a public market multiple. It looks like Tata has been in the press saying they might spin Land Rover / Jag. Why not merge that with Alfa/Mas. Would be nice combo. Alternatively VW could spin some of their luxury brands that are not core to the platform into lux co. Lambo, bugatti, bentley. Wouldnt be crazy...  I think before the samsung thing went down that was what the team was working towards thru a potential "jv". I think they were going to create a spin - merge with one of samsungs subsidiaries. Instead Samsung bought harman and then the kid who was on the board got in trouble.. series of unfortunate events.

 

Also, Ram especially after product reallignement is prob big enough to float on its own. What will that do 1.5bn -2bn of EBIT. I think I think it was doing greater than 1 before..have to check. Not a ton of shared platforms on RAM. Also can have arms length R&D sharing agreement ala nissan/renault. There seem to be alot of different ways to win here. I think the  math on the merger is too compelling though. 10bn of savings split two ways is 5bn each. Assume you get a little mutliple expansion from consolidation and its like 50bn of USD value per company maybe more thats 35 USD value in merger synergies. Too big to ignore.

 

Also, Sergio mentioned in venice that the emissions stuff will have no effect on 2018 plan. if you parse thru that carefully and I have confirmed with IR, the balance sheet is part of the 2018 plan/targets. That means serge does not expect any material fines/cash outflow from the EPA thing. The market seems to be overly focused on this given precedent with VW but I think its a non event. The fix is a flash update given all FCA's vehicles have SCRs. VW implenmentation of the fix and buybacks where was the lionshare of the penalties from... also many more cars. I think Sergio is taking this to task instead of paying a small fine so he can put the dark cloud to bed finally and for good.

 

Lot to like here if you are patient.

 

whatdadil9,

 

thanks for laying this all out.  I agree with most of what you're saying here. I think there's a lot to do be done on the spin side given where auto multiples are.  Thanks also for your insights following your convos with IR.

 

I suspect our interest expense assumptions are the big difference here.  What interest expense are you using for 2018 to go from Adj. EBIT $10B USD to $7.5B in Adj. Profit?  Also what debt and cash level to get to net cash of $5B.  I have my model on a different computer so I don't have my numbers here in front, but from the top of my head if I have $10B EUR in cash, I guess I would have to have $5B EUR in Industrial debt.  Therefore at 6%, I would have an interest expense of EUR300M on a go-forward basis (2019+), but not at the end of 2018.  2018 would be a blended average of the start of the year and the end of the year. 

 

Link to comment
Share on other sites
whatdadil9 Newbie

whatdadil9

Posted
Posted

I was using 11bn USD EBIT. and 10 BN USD EBT. then 7.5 after tax net profit.

 

So 1bn USD of interest...it could in fact be lower. I think if you assume cash of 15bn and debt of 10bn then 5/6 pct of that prob gets you something south of 1bn USD of interest expense. Not to mention they will prob generate 100/150 of interest income from the cash....So my blended interest income/expense could prob be alot lower... who knows.

Link to comment
Share on other sites
Shooter MacGavin Newbie

Shooter MacGavin

Posted
Posted

ok that's fair.  thanks.  I think you can get to $5 on a run-rate number going forward.  I don't think i can get there easily on 2018 just because of the debt at the start of the year.  Either way, if the market uses the NTM multiple of around 6.2x at the end of 2018 and you've got a $30 USD stock.  some financial engineering and we're much higher.

Link to comment
Share on other sites
whatdadil9 Newbie

whatdadil9

Posted
Posted

NTM at end of 18 or 2017?

 

Earnings will be even higher in 2019 with jeep pickup, wagoneer, and lower interest expense. might also get dividend if no merger.... I dont think you have to wait til end of 18... sergio said by june of 18 if people dont care we will pull out all the stops?

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share
Go to topic listing


×
×
  • Create New...