FCAU - Fiat Chrysler Automobiles

[cubsfan]

BIG question..

 

In the three years since capital junkie, fca has spunoff race, about to spinoff MM, and margins are equal and about to surpass gm and way higher than ford.

 

If you are one of the double digit bn activist funds... why dont you push for a ipo of alfa /mas in light of aston mulitples or spin out -- given relationship with ferrair on power train and r&D can survive on its own.... and then partner with elkann to finally to oem consolidation. if MM sells for cash in theory FCA could do hostile of someone... F has a ton of net cash on BS... not crazy...

 

Not alot of cheap stocks for the big dogs out there. We get to around 1x EBIT ex marelli and normalized for ram product launch costs...

 

I'm wondering how hard you can push an agenda like this - if you have the family driving the process and control the shares. Not sure you can outmaneuver Elkann.

[walkie518]

BIG question..

 

In the three years since capital junkie, fca has spunoff race, about to spinoff MM, and margins are equal and about to surpass gm and way higher than ford.

 

If you are one of the double digit bn activist funds... why dont you push for a ipo of alfa /mas in light of aston mulitples or spin out -- given relationship with ferrair on power train and r&D can survive on its own.... and then partner with elkann to finally to oem consolidation. if MM sells for cash in theory FCA could do hostile of someone... F has a ton of net cash on BS... not crazy...

 

Not alot of cheap stocks for the big dogs out there. We get to around 1x EBIT ex marelli and normalized for ram product launch costs...

Excising Alfa and Maserati are probably two different conversations.

 

There are a number of problems with Alfa's re-launch...most of them having to do with being new.  I would think once the kinks are worked out, Alfa could spin but it unclear how strong the brand would be on its own?

 

Maserati, on the other hand, is a different business from Ferrari or likely even Aston Martin.  Maybe if Alfa and Maserati were one company that might be feasible, but Maserati isn't particularly exciting...it's not much different from most other cars despite the Italian name and design.  Rolex:Tudor :: Ferrari : Maserati

 

The resale values of Maserati tend to move in line with any other car, except that Maserati are very, very expensive out the gate.  I would think that Maserati on its own wouldn't really make much sense without a rebirth of the brand.  There are way too many out there.

 

Eg, this one looks like it was likely leased and is up for resale asking $36k, no accidents, less than 10k miles:

https://www.ebay.com/itm/Maserati-Ghibli-S-Q4/401590758246?hash=item5d80acab66:g:EHcAAOSwlUhbfxFv&vxp=mtr#viTabs_1

 

original msrp might be $100k

https://www.wideworldmaserati.com/new-inventory/maserati

 

[whatdadil9]

I was referring to ALFA/MAS combined.. alfa is making some fully /hybridelectric super cars that are goinna go for 250.. maserati too.. tesla beating..

 

maserati resale values are actually pretty good on the high end. the ghibli is a high production car in a declining category --- wouldnt use that as my benchmark. its 4-5 model years ago.. mileage is less important then age given how quickly tech is moving.

 

I am super bullish on ALFA/ MAS. I think the fact that they have ferrari inside for sure creates a halo... just like how jcrew cashmere sweaters are made in same factory as loro piana -- not many peopel know that..

 

So, look is aston lower prouduction than alfa mas.. .sure... but i think the audience for ferrari wannabees is also much higher. How many people by a tudor bc they can afford a rolex. or audemars bc they cant afford patek or dont buy enough from a dealer ot get allocated one.

 

I think mass market luxury is a great category to be in...great pricing growth and secular demand drivers...Alfa is prob profitable on operating basis -- i believe they are investing alot in sales and marketing and dealers to get the brand going which is more growth capex in my mind.. I think the cars are great and reviews corroborate it. Give it time... Its been out of the US market for over 20 years and they are doing huge sales growth.. they just need more product...and to fix dealership based.

[Guest ajc]

 

My two cents is if there were some kind of activist (say ValueAct or someone who isn't just there to break things up), then tracking stocks a la John Malone might be the best way to highlight the value of FCAU's businesses ahead of potential future spin-offs, etc.

I mean, if someone could just own the Maserati part, or the Jeep part, that might be a darn nice option for attracting new owners.

 

Otherwise, I think announcing a major $2B or $3B buyback below certain levels could do nice things for the stock. Maybe reintroducing a small dividend would work as well, to attract different investors.

Those'd be the things I'd focus on getting management to consider, also they'd probably cost very little relative to the potential upside.

 

 

 

[whatdadil9]

What makes Fiat go up now?

 

It seems to be in a death spiral. F/GM have their own issues and are trading at ~4.5x EBIT--with declining / stable margins. FCA trades approximately 1.5x ex-marelli.

 

FCAs margins are going up (already better than F and tied with GMish) and they have the best brand in the world at 2m units that can go to 7+ over time.

 

Yet, stock keeps going down.... It seems absent Pabrai, no one wants to take a stand and publicly vouch for this company yet others are willing to vouch for GM -- seems odd.

 

Im curious to understand the set of circumstances that others seem to need to get comfortable buying the stock at these valuations..

 

If the Company sells marelli, half hte market cap will be in cash at year end almost generating a 30+ pct FCF yield to equity...much greater to EV

[kab60]

Didn't see it mentioned here, but one thing - which Berenberg writes in a big auto OEM analysis recently - is the negative working capital. Some 20b off the top of my head? No view here, just thought I'd mention it.

[walkie518]

I'm not sure this is a very intelligent move?  Why would Fiat consider selling MM at such a large discount?  Am I missing something?

https://finance.yahoo.com/video/kkr-said-talks-fiat-chrysler-135327493.html

[ValueMaven]

https://finance.yahoo.com/news/hedge-fund-tiger-global-ups-162342818.html

 

Thats kinda huge IMHO

[PLynchJr]

https://finance.yahoo.com/news/hedge-fund-tiger-global-ups-162342818.html

 

Thats kinda huge IMHO

 

Why?

[whatdadil9]

The pre-eminent tech disruption investor who is the largest shareholder in global ride hailing made a 1bn bet on FCA.. tells you they think the brands are secularly strong and autonomous/ridesharing is not gonna kill auto.

 

Also, they are huge in China and obviously are not worried about the china piece...

[rkluwer]

Story out that "KKR" or a sub of them, japenese oed company, is only preperede to pay arrround 5 y Eur for M. Fiat is said to seek arround 6 y eur. Other players have been mentioned, apollo and bain to name a few, from the story.

 

The say due to the bad stock market for carparts etc in Eu at mom, KKR doesn't think the need to pay top premium for Magneti at mom. But lets see. The end Aug deadline is over, så maybe why the news have been leaked, so we shall see what happens. Atleast it puts a mark on where this has to get traded, arround the 5-6 y eur price (6-7 y USD) 

[fareastwarriors]

Fiat Chrysler Is Seeking Over $7 Billion for Marelli From KKR

 

 

https://www.bloomberg.com/news/articles/2018-09-12/fiat-chrysler-said-to-seek-over-7-billion-for-marelli-from-kkr

[Guest ajc]

 

https://www.bloomberg.com/news/articles/2018-10-09/fiat-chrysler-is-said-to-near-sale-of-marelli-to-kkr-s-calsonic

 

 

Looks like most of Magneti Marelli is going to Calsonic Kansei for slightly over $6.3B. The sale may be announced as early as this month.

At today's share price, that's slightly less than 25% of FCAU's market cap.

 

 

 

[Wabash02]

I saw the 6.3B number included debt.  Any thought as to how much of that number is debt?

 

Thanks

[Guest ajc]

 

 

I saw the 6.3B number included debt.  Any thought as to how much of that number is debt?

 

Thanks

 

 

 

Good question. Sorry, not sure.

Trying to set bias aside, I'd guess Manley and Elkann would continue on the spin-off route if the mix wasn't favorable.

They were going to until the offer was raised, so I'd think it'll reflect that.

With any luck, we'll know by month-end.

 

 

 

[DTEJD1997]

Hey all:

 

Assuming that there is not another economic collapse, FCAU has entered "silly" valuation territory.  This is especially so if they spin off Magnetti-Marreli at anything like what is expected.

 

EV/EBIDTA is something like 2.5.  What will that be like a year from new with Magnetti spun off and some more earnings made?

 

I just don't get it, so I bought some today...not at the low, but close to it.

 

We will see what happens!

[mwtorock]

Hey all:

 

Assuming that there is not another economic collapse, FCAU has entered "silly" valuation territory.  This is especially so if they spin off Magnetti-Marreli at anything like what is expected.

 

EV/EBIDTA is something like 2.5.  What will that be like a year from new with Magnetti spun off and some more earnings made?

 

I just don't get it, so I bought some today...not at the low, but close to it.

 

We will see what happens!

 

agree it is undervalued here, but i think market expectation for Magnetti was higher than what is reported i guess. a lot of silly things happen in the market.

[TwoCitiesCapital]

Hey all:

 

Assuming that there is not another economic collapse, FCAU has entered "silly" valuation territory.  This is especially so if they spin off Magnetti-Marreli at anything like what is expected.

 

EV/EBIDTA is something like 2.5.  What will that be like a year from new with Magnetti spun off and some more earnings made?

 

I just don't get it, so I bought some today...not at the low, but close to it.

 

We will see what happens!

 

Agreed. I am rolling my Jan 2019 options forward and have increased my holdings by about 40-50% following the dips below $17 that have been occurring.

[DTEJD1997]

hey all:

 

I just went to check the maths on FCAU...and could things be even sillier than I thought?

 

FCAU market cap is about $25BB.  Debt is about $19BB, cash is about $16BB...so Enterprise Value is about $28BB.

 

Sell off Magnetti/Marelli for $6BB (cash & assumption of debt), enterprise value is now about $22BB.

 

Run the new company for about a year, EBIDTA is about $11 to $14 Billion.  What then happens with all that cash flow?  I don't care how capital intensive the car industry is, FCAU won't spend anywhere near that...maybe capital expenditures of $7BB?  $8BB at the most (Magnetti/Marreli is now gone, lower expenditures)?

 

So we've got free cash flow of a minimum of 10%  perhaps even approaching 20%

 

Company should have plenty of cash & line of credit to make it through all but the most severe of downturns...

 

What happens if Maserrati is spun off, what happens if Jeep/Truck sales continue to improve?  Not a ton of stuff has to go right and FCAU is simply making tons of cash.

[vinod1]

hey all:

 

I just went to check the maths on FCAU...and could things be even sillier than I thought?

 

FCAU market cap is about $25BB.  Debt is about $19BB, cash is about $16BB...so Enterprise Value is about $28BB.

 

Sell off Magnetti/Marelli for $6BB (cash & assumption of debt), enterprise value is now about $22BB.

 

Run the new company for about a year, EBIDTA is about $11 to $14 Billion.  What then happens with all that cash flow?  I don't care how capital intensive the car industry is, FCAU won't spend anywhere near that...maybe capital expenditures of $7BB?  $8BB at the most (Magnetti/Marreli is now gone, lower expenditures)?

 

So we've got free cash flow of a minimum of 10%  perhaps even approaching 20%

 

Company should have plenty of cash & line of credit to make it through all but the most severe of downturns...

 

What happens if Maserrati is spun off, what happens if Jeep/Truck sales continue to improve?  Not a ton of stuff has to go right and FCAU is simply making tons of cash.

 

In calculating EV, you need to deduct "excess cash" (not all cash) as the logic is that if you own the company you can take it all out. Here, that is not the case.

 

Also, you are ignoring the €8 - €9 billion in unfunded pension and OPEB liabilities. This needs to be added back to EV.

 

Vinod

[Homestead31]

what happens if they start filing 10Ks in the US instead of 20Fs?

[cmlber]

hey all:

 

I just went to check the maths on FCAU...and could things be even sillier than I thought?

 

FCAU market cap is about $25BB.  Debt is about $19BB, cash is about $16BB...so Enterprise Value is about $28BB.

 

Sell off Magnetti/Marelli for $6BB (cash & assumption of debt), enterprise value is now about $22BB.

 

Run the new company for about a year, EBIDTA is about $11 to $14 Billion.  What then happens with all that cash flow?  I don't care how capital intensive the car industry is, FCAU won't spend anywhere near that...maybe capital expenditures of $7BB?  $8BB at the most (Magnetti/Marreli is now gone, lower expenditures)?

 

So we've got free cash flow of a minimum of 10%  perhaps even approaching 20%

 

Company should have plenty of cash & line of credit to make it through all but the most severe of downturns...

 

What happens if Maserrati is spun off, what happens if Jeep/Truck sales continue to improve?  Not a ton of stuff has to go right and FCAU is simply making tons of cash.

 

In calculating EV, you need to deduct "excess cash" (not all cash) as the logic is that if you own the company you can take it all out. Here, that is not the case.

 

Also, you are ignoring the €8 - €9 billion in unfunded pension and OPEB liabilities. This needs to be added back to EV.

 

Vinod

 

Vinod, if you add back underfunded pension & OPEB you are double counting, as they expense the interest cost on the underfunding through the income statement unlike GM.  So if you're going to add it back to EV, you also need to add €400MM+ to EBIT.  The actual cash contributions to the pension are less than the expense on the P&L.

 

Hypothetically, if they decided to never spend another dollar on R&D or capex, how long do you think they could keep selling the existing lineup before sales dry up?  Let's call it 3yrs.  That would produce ~€45B in cash flow.  Add back the €4B year-end 2018 net cash, deduct €10B for negative working capital unwind and €9B for underfunded pension, that leaves us with €30B in cash to distribute to shareholders on a Mkt Cap of €22-23B after MM sale.  Obviously I don't expect them to liquidate the company, but that seems like a pretty decent margin of safety to me.

[Shooter MacGavin]

hey all:

 

I just went to check the maths on FCAU...and could things be even sillier than I thought?

 

FCAU market cap is about $25BB.  Debt is about $19BB, cash is about $16BB...so Enterprise Value is about $28BB.

 

Sell off Magnetti/Marelli for $6BB (cash & assumption of debt), enterprise value is now about $22BB.

 

Run the new company for about a year, EBIDTA is about $11 to $14 Billion.  What then happens with all that cash flow?  I don't care how capital intensive the car industry is, FCAU won't spend anywhere near that...maybe capital expenditures of $7BB?  $8BB at the most (Magnetti/Marreli is now gone, lower expenditures)?

 

So we've got free cash flow of a minimum of 10%  perhaps even approaching 20%

 

Company should have plenty of cash & line of credit to make it through all but the most severe of downturns...

 

What happens if Maserrati is spun off, what happens if Jeep/Truck sales continue to improve?  Not a ton of stuff has to go right and FCAU is simply making tons of cash.

 

In calculating EV, you need to deduct "excess cash" (not all cash) as the logic is that if you own the company you can take it all out. Here, that is not the case.

 

Also, you are ignoring the €8 - €9 billion in unfunded pension and OPEB liabilities. This needs to be added back to EV.

 

Vinod

 

Vinod, if you add back underfunded pension & OPEB you are double counting, as they expense the interest cost on the underfunding through the income statement unlike GM.  So if you're going to add it back to EV, you also need to add €400MM+ to EBIT.  The actual cash contributions to the pension are less than the expense on the P&L.

 

Hypothetically, if they decided to never spend another dollar on R&D or capex, how long do you think they could keep selling the existing lineup before sales dry up?  Let's call it 3yrs.  That would produce ~€45B in cash flow.  Add back the €4B year-end 2018 net cash, deduct €10B for negative working capital unwind and €9B for underfunded pension, that leaves us with €30B in cash to distribute to shareholders on a Mkt Cap of €22-23B after MM sale.  Obviously I don't expect them to liquidate the company, but that seems like a pretty decent margin of safety to me.

 

that's a great way of looking at the downside.

[Snorky]

That is a good way, but not a great way, to look at the downside. The real downside is that the company is burning cash through expenses like R&D and not get rewarded for it.

Not that i think it will happen, I’m long on the stock, but the liquidation scenario is obv not likely and not the worst case scenario.

But well calculated and interesting thought.

 

Snorky

[whatdadil9]

The pension and OPEB add back is closer to 1.7bn eur ebit.. .if you are capitalizing all 8. also 100 bps is 3bn is underfundedness eliminated.