TwoCitiesCapital Posted December 11, 2014 Share Posted December 11, 2014 We can certainly be disappointed in the price, but it's still significantly better than the price just 2 months ago and they still purchased some 53M shares at around $9 and flipped them two months later at $11 - that's a 100 for savvy financing. In the long term, the additional 5% of dilution isn't going to affect us too much and we may still see favorable developments with the over allotment and convertibles to come. The 10% drop yesterday more than makes up for the increased dilution for those of us who added. Link to comment Share on other sites More sharing options...
Ian L Posted December 11, 2014 Share Posted December 11, 2014 That being said one perhaps under appreciated/under mentioned risk with FCAU is the likelihood of the spinoff being cancelled now after they have raised cash and the announcement partially has filled its purpose. I think it is very unlikely but the risk ain't 0. They would lose a lot of credibility if they went back on their announcement if they cancelled the Ferrari spinoff. Not only that, but I am sure the regulators would have a lot to say and investigate about them manipulating the share price higher so that they can sell shares before cancelling it. Link to comment Share on other sites More sharing options...
merkhet Posted December 11, 2014 Share Posted December 11, 2014 That being said one perhaps under appreciated/under mentioned risk with FCAU is the likelihood of the spinoff being cancelled now after they have raised cash and the announcement partially has filled its purpose. I think it is very unlikely but the risk ain't 0. They would lose a lot of credibility if they went back on their announcement if they cancelled the Ferrari spinoff. Not only that, but I am sure the regulators would have a lot to say and investigate about them manipulating the share price higher so that they can sell shares before cancelling it. I had a similar thought about whether Marchionne would go back on his word about Ferrari, but I came to the same conclusion as Ian. It would be a big credibility problem for them if they reneged after inducing investors to pick up mandatory convertible bonds on that basis. Link to comment Share on other sites More sharing options...
compounding Posted December 11, 2014 Share Posted December 11, 2014 Ian L & merkhet, We are in agreement. Link to comment Share on other sites More sharing options...
karthikpm Posted December 11, 2014 Share Posted December 11, 2014 A 5% dilution becomes a big issue if the Intrinsic Value is close to yesterday's quote. FCAU is trading still at a significant discount to IV ( I think), that issuing debt and equity at this juncture is not significantly dilutive to my investment thesis. However, I am not sure it is a great entry point to add to my position at this price ( largely built around $7) .. What are the general estimates of IV on the board for FCAU? Link to comment Share on other sites More sharing options...
investor-man Posted December 11, 2014 Share Posted December 11, 2014 What are the general estimates of IV on the board for FCAU? I'm curious here as well. My target price is somewhere in the ballpark of $17 - $20... It's higher than the recent Goldman valuation, which was about $16 IIRC Link to comment Share on other sites More sharing options...
merkhet Posted December 11, 2014 Share Posted December 11, 2014 What are the general estimates of IV on the board for FCAU? I'm curious here as well. My target price is somewhere in the ballpark of $17 - $20... It's higher than the recent Goldman valuation, which was about $16 IIRC Embarrassingly higher than either of yours. :) Link to comment Share on other sites More sharing options...
investor-man Posted December 11, 2014 Share Posted December 11, 2014 What are the general estimates of IV on the board for FCAU? I'm curious here as well. My target price is somewhere in the ballpark of $17 - $20... It's higher than the recent Goldman valuation, which was about $16 IIRC Embarrassingly higher than either of yours. :) I borrowed (err.. cloned) someone's SOTP valuation that looks very similar to the Goldman valuation. I should add that while I enjoy participating in this forum, I'm not the guy you should be looking to for insight. Link to comment Share on other sites More sharing options...
karthikpm Posted December 11, 2014 Share Posted December 11, 2014 Greenwood investors had been posting something about $30 range- I find the assumptions used very cheery / unrealistic. Morningstar had around $19 but lowered it to 17 . .. This is a bet on Marchionne . I would not invest otherwise in such a capital intensive, cyclical business. Also, there has been a lot of commentary on whether this is the peak of the autobuying cycle. Our two cars have each over 80k miles on it, the replacement cycle I think has legs.. Link to comment Share on other sites More sharing options...
vinod1 Posted December 11, 2014 Share Posted December 11, 2014 The IV range for Fiat is unusually high due to very high leverage - if you adjust cash properly, debt/equity is something like 80/20. So a small change in operating results can translate into a very large change in EPS. Vinod Link to comment Share on other sites More sharing options...
Rust Belt Capital Posted December 11, 2014 Share Posted December 11, 2014 What are the general estimates of IV on the board for FCAU? I'm curious here as well. My target price is somewhere in the ballpark of $17 - $20... It's higher than the recent Goldman valuation, which was about $16 IIRC Embarrassingly higher than either of yours. :) I'm in Merkhet's camp. Just as a very rough estimate, I took out an estimated $5.60/share for ferrari and $885 in 2015 EBITDA (only 8% growth from 2013 EBITDA!) from the street consensus 2015 EBITDA estimate of 11.882 billion, for an ex-ferrari EBITDA of $10.923 bn. Assuming $5.60/share for Ferrari, at current trading price ($11.35 as I write this), Fiat is trading at roughly 2x 2015 EBITDA. This doesn't include any of the recent financing moves impact to net debt btw. A quick re-rate to 3x puts you at $14 a share, plus your $5.2 for ferrari. When you factor in the recent fundraising, and the potential for Ferrari to trade at a higher than 10x multiple i think its pretty easy to get to a PT substantially north of $20/share. And if you even remotely buy into Sergio's five year plan...... woo boy. That said this is all back of the envelope stuff, and I have to admit I'm fairly new at this stuff and still learning, so if I'm way off base here feel free to let me know! Link to comment Share on other sites More sharing options...
goldfinger Posted December 11, 2014 Share Posted December 11, 2014 Greenwood investors had been posting something about $30 range- I find the assumptions used very cheery / unrealistic. They were the only ones that talked about a Ferrari spin-off ahead of schedule. They seem to have made their homework a bit better than others. Link to comment Share on other sites More sharing options...
investor-man Posted December 11, 2014 Share Posted December 11, 2014 The way I look at it is the SOTP valuations out there are good conservative estimates. Everything has to go right to hit Greenwood's and Marchionne's five-year-plan valuations. Marchionne has been impressive so far and everything has gone his way, but there's a lot he can't control, so those valuations feel a bit speculative to me. I'll stick with the SOTP valuations and deal with the fact that I could be wrong if things are better than I expect. Link to comment Share on other sites More sharing options...
Avyalake Posted December 12, 2014 Share Posted December 12, 2014 hmm…. http://www.fcagroup.com/en-US/media_center/fca_press_release/FiatDocuments/2014/december/FCA_prices_offering_of_common_shares_and_offering_of_mandatory_convertible_securities.pdf I'm a bit disappointed at the share sale @ $11/share and the converts at a range from $11 to 13/share given where the common has been trading the last month, the solid November numbers and the Ferrari IPO. Any positive spin to this? Hard to find any... a massive stock dilution by any other name is nothing but :(. Also I don't see how we get to 5+$ for ferrari as base case. I get 6$ assuming 10B € valuation which is likely on the very high end. Link to comment Share on other sites More sharing options...
peter1234 Posted December 12, 2014 Share Posted December 12, 2014 Looks like they wanted to make sure the underwriting would be executed in full. http://finance.yahoo.com/news/fca-announces-exercise-underwriters-option-070000836.html Link to comment Share on other sites More sharing options...
peter1234 Posted December 12, 2014 Share Posted December 12, 2014 Ferrari Sergio. http://www.slashgear.com/production-pininfarnia-ferrari-sergio-shares-engine-with-458-speciale-10358966/ Link to comment Share on other sites More sharing options...
Phaceliacapital Posted December 12, 2014 Share Posted December 12, 2014 It's a pity they changed the headrests. Link to comment Share on other sites More sharing options...
karthikpm Posted December 12, 2014 Share Posted December 12, 2014 hmm…. http://www.fcagroup.com/en-US/media_center/fca_press_release/FiatDocuments/2014/december/FCA_prices_offering_of_common_shares_and_offering_of_mandatory_convertible_securities.pdf I'm a bit disappointed at the share sale @ $11/share and the converts at a range from $11 to 13/share given where the common has been trading the last month, the solid November numbers and the Ferrari IPO. Any positive spin to this? Hard to find any... a massive stock dilution by any other name is nothing but :(. Also I don't see how we get to 5+$ for ferrari as base case. I get 6$ assuming 10B € valuation which is likely on the very high end. It seems there has been significant dilution with this issue . Morningstar lowered their FV / IV to $15 from 17 ( down from 19 adjusted for currency). In my mind, the thesis is intact but not sure how dilutive the new shares will be to valuation. Their share count will go from 1229 million to 1559 million diluted shares. Link to comment Share on other sites More sharing options...
merkhet Posted December 12, 2014 Share Posted December 12, 2014 Yup, this was significantly dilutive though I think Marchionne didn't really have any better options here. Link to comment Share on other sites More sharing options...
wbr Posted December 12, 2014 Share Posted December 12, 2014 Is dilution necessarily a bad thing? I don't think so. The share count goes up, but if you increase your stake proportionately you keep the same ownership %. Let's make a little thought experiment: If everybody bought shares in the offering equal to their current ownership percentage there wouldn't be any new shareholders. The company just gets more equity capital. The equity is invested in the business and generates a (hopefully high) return. If you think this return will be adequate you don't have to care about dilution. Your total return will then consist of the return on the stock of your inital position and the return on your participation in the offering. Yes, the return on your initial investment might be higher because you bought very undervalued, but if the marginal return on equity on the share offering is at least adequate, your total average return will be somewhere above that and probably be good. People view dilution as negative, because it usually coincides with other negative developments. When a company issues shares after they had years of great stock returns it might signal overvaluation and bad future returns. But the dilution itself will actually be good for intrinsic value per share since they sell shares above intrinsic value. The other side of the spectrum is when a beaten down company issues shares. The need for more capital and a low stock price has a high correllation with troubled, cash burning businesses or bad management. So the dilution won't necessarily be the factor that destroys value for existing shareholders. The thing that destroys value is the fact that the business and/or the management suck and eventually bring the stock to 0. Given that FCA operates in a industry with mediocre returns, but with Sergio who is the best capital allocator in the industry the outcome is probably not too bad. You can also consider that additional equity decreases the cost of debt financing, increases the financial flexibility in rough times that might come up over the next 5 years and improves the ability to transform the company into a more competitive player in a market where scale is factor. Those advantages would not be enjoyed if it wasn't for the offering. Link to comment Share on other sites More sharing options...
Avyalake Posted December 12, 2014 Share Posted December 12, 2014 Is dilution necessarily a bad thing? I don't think so. The share count goes up, but if you increase your stake proportionately you keep the same ownership %. Let's make a little thought experiment: If everybody bought shares in the offering equal to their current ownership percentage there wouldn't be any new shareholders. The company just gets more equity capital. The equity is invested in the business and generates a (hopefully high) return. If you think this return will be adequate you don't have to care about dilution. Your total return will then consist of the return on the stock of your inital position and the return on your participation in the offering. Yes, the return on your initial investment might be higher because you bought very undervalued, but if the marginal return on equity on the share offering is at least adequate, your total average return will be somewhere above that and probably be good. People view dilution as negative, because it usually coincides with other negative developments. When a company issues shares after they had years of great stock returns it might signal overvaluation and bad future returns. But the dilution itself will actually be good for intrinsic value per share since they sell shares above intrinsic value. The other side of the spectrum is when a beaten down company issues shares. The need for more capital and a low stock price has a high correllation with troubled, cash burning businesses or bad management. So the dilution won't necessarily be the factor that destroys value for existing shareholders. The thing that destroys value is the fact that the business and/or the management suck and eventually bring the stock to 0. Given that FCA operates in a industry with mediocre returns, but with Sergio who is the best capital allocator in the industry the outcome is probably not too bad. You can also consider that additional equity decreases the cost of debt financing, increases the financial flexibility in rough times that might come up over the next 5 years and improves the ability to transform the company into a more competitive player in a market where scale is factor. Those advantages would not be enjoyed if it wasn't for the offering. Completely agree with the assessment. It is definitely good for the company overall in this case with Marchionne at the helm. But personally it was obvious that I was facing a dilution but was in denial as I confused the top headline with the reality of the dilution. The company has a better profile because of this capital raise. But at the same time the dilution was staring at my face and I forgot to take note. Link to comment Share on other sites More sharing options...
peter1234 Posted December 16, 2014 Share Posted December 16, 2014 In Europe (EU28+EFTA), Fiat Chrysler Automobiles posted November sales up 3.6% year-over-year versus 1.2% for the industry. Jeep brand posted an all-time monthly record for European sales, driven by a 110.6% year-over-year increase. The Fiat 500 and Panda remained the two top selling vehicles in the A segment (accounting for a combined 28.4% share) and the 500L led the Small MPV segment for the eleven months to November with a 22.1% share. http://finance.yahoo.com/news/november-2014-fiat-chrysler-automobiles-074000315.html Link to comment Share on other sites More sharing options...
peter1234 Posted December 17, 2014 Share Posted December 17, 2014 FCA Closes Offering of Common Shares and Offering of Mandatory Convertible Securities Fiat Chrysler Automobiles N.V. (FCAU) ("FCA") announced today that it has completed the sale of 100 million common shares, nominal value €0.01 per share, and U.S.$2,875 million in aggregate notional amount of its 7.875% mandatory convertible securities due 2016. http://finance.yahoo.com/news/fca-closes-offering-common-shares-190100588.html Link to comment Share on other sites More sharing options...
Guest notorious546 Posted January 2, 2015 Share Posted January 2, 2015 is it possible to get a top holders list for the company? i'm not sure after doing a quick search on yahoo given the company was only listed recently. Thanks! ;D Link to comment Share on other sites More sharing options...
nikhil25 Posted January 6, 2015 Share Posted January 6, 2015 2014 Auto Sales Jump in U.S., Even With Recalls http://www.nytimes.com/2015/01/06/business/us-auto-sales-jump-for-2014.html?_r=0 Domestically, Fiat Chrysler soared to a 16 percent increase in sales last year compared with 2013. The company sold more than two million vehicles in the United States, and its Jeep brand set a record for its best sales year. December 2014 Sales for FCA: 193,261 (+20%) Link to comment Share on other sites More sharing options...
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