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Fiat Chrysler Automobiles NV NYSE: FCAU
Price as of 10/06/15: $14.25 Target Price: $19.77
Investment Recommendation • We recommend to buy FCAU at the current price • FCAU satisfies the Orange Value Fund’s “safe
and cheap” investment strategy – Safe
• Well capitalized for an automobile manufacturer • Consistent growth in EBITDA since 2010 • Ferrari spinoff will provide additional capital to reduce debt
levels and increase profit margins – Cheap
• FCAU is trading at a 43.4% discount to NAV • The company has $24 billion in cash and only 1.288 B shares
outstanding ($19.06 of resource conversion value)
Investment Catalysts • Ferrari spinoff will help reduce debt levels and increase profitability
of overall business • New 2014-2018 business plan calls for expanding the rapidly
growing Jeep brand through localized production in Asia and Latin America
• FCAU has been holding onto cash pursuing a merger with GM, a deal that would create a combined entity of over $30 billion in cash – CEO Sergio Marchionne says the merger would also drastically
decrease prices from suppliers and R&D expenses • European auto manufacturers have seen significant decrease in price
as a result of the VW scandal – FCAU has been aggressively pushing to steal market share from VW
by offering significant rebates and discounts for any VW trade ins
Business Overview
• Business Segments
*Mass Market Vehicle Sales Segmented by Geographic Region
Segment Information
Revenues Restated12 months
Dec-31-2012
Reclassified12 months
Dec-31-201312 months
Dec-31-2014NAFTA $57,381.50 $63,040.69 $63,489.68 LATAM $14,585.01 $13,734.08 $10,444.83 APAC $4,183.53 $6,428.42 $7,576.11 EMEA $23,359.48 $23,872.48 $21,812.02 Ferrari $2,933.61 $3,215.59 $3,343.22 Maserati $995.45 $2,284.65 $3,349.27 Components (Magneti Marelli, Teksid, Comau) $10,587.38 $11,127.18 $10,432.73 Other $1,290.79 $1,279.35 $1,005.87 Corporate ($4,874.40) ($5,690.30) ($5,143.10) Total Revenues $110,442.35 $119,292.16 $116,310.60
Strong unit sales growth in APAC region; FCAU’s most profitable mass market segment
Strong sales growth in Maserati segment; FCAU’s only luxury segment after completion of Ferrari spinoff
Capital Structure • The company is trading at low
– Net Debt/EBITDA multiple:1.03x (Industry Average: 4.9x)
– Total Debt/EBITDA multiple: 3.2x (Industry Average: 5.7x)
Ferrari Spinoff • On October 29th, 2014 the Board of Directors announced that it had authorized the separation
of Ferrari from FCAU. • FCAU CEO Sergio Marchionne expects Ferrari NV to be valued at “at least” 10 billion euros. • FCAU plans to sell 10% of Ferrari (1 billion euros) to the public and redistribute the
remaining 80% of FCAU’s ownership to FCAU shareholders. – Allows FCAU to pay down debt, decrease interest expenses and increase profit margins. – If FCAU were to use all of the proceeds from the spinoff to pay down LTD, their Net
Debt/EBITDA would drop from 1.03x to 0.91x. – The terms of the spin off incentivize major share holders to hold onto the new company.
• loyalty voting program; every shareholder who holds onto their share of Ferrari for at least 3 years will effectively receive two votes for each common share of Ferrari that they own.
Fiat-Chrysler Merger Timeline • April 2009: Chrysler files for Chapter 11 Bankruptcy • June 2009: Chrysler emerges from bankruptcy with the United Auto Workers (UAW) pension fund, Fiat,
the United States government and Canadian government as its principal owners • 2011: Fiat acquires close to 60% ownership from the other parQes • January 2014: Fiat completed the acquisiQon of the remaining 41.5% from the UAW making Chrysler a
wholly owned subsidiary
In fiscal 2011 Fiat’s cash balance increased from $16,518 (mm) to $23,793 (mm) and LTD increased from $13,904 (mm) to $35,197 (mm). A majority of both of these spikes can be a_ributed to the merger with Chrysler.
Valuation Comps • FCAU is trading at a discount on
– EV/Revenue – EC/ECBITDA – EV/EBIT
Company Name TEV/Total Revenues LTM - Latest
TEV/EBITDA LTM - Latest TEV/EBIT LTM - Latest P/Diluted EPS Before Extra LTM - Latest
Ford Motor Co. (NYSE:F) 1.1x 11.8x 26.7x 14.8xDaimler AG (XTRA:DAI) 1.2x 10.9x 14.6x 9.8xVolkswagen AG (XTRA:VOW3) 0.8x 6.3x 9.8x 7.6xRenault Société Anonym (ENXTPA:RNO) 1.1x 9.3x 13.8x 8.0xPeugeot S.A. (ENXTPA:UG) 0.3x 3.4x 6.5x NMGeneral Motors Company (NYSE:GM) 0.5x 5.3x 8.8x 11.1x
Fiat Chrysler Automobiles N.V. (BIT:FCA) 0.3x 3.2x 6.1x 18.1x
Summary Statistics TEV/Total Revenues LTM - Latest
TEV/EBITDA LTM - Latest TEV/EBIT LTM - Latest P/Diluted EPS Before Extra LTM - Latest
High 1.2x 11.8x 26.7x 14.8xLow 0.3x 3.4x 6.5x 7.6xMean 0.8x 7.8x 13.4x 10.3xMedian 0.9x 7.8x 11.8x 9.8x
FCAU is trading at a high P/E because earnings are skewed by high interest expenses
Debt Schedule
Year Debt2016 $5,542.582017 $4,178.652018 $3,776.572019 $4,310.562020 $3,789.142021 $8,675.222022 $958.232023 $3,000.00
Total $34,230.95
FCAU has relatively stable debt maturities until 2021
FCAU Ownership
Investment Risks • Low demand on vehicle sales, particularly minivans, larger utility vehicle
and pick-up trucks could cause the business to suffer. Since auto manufacturers have such high fixed costs, a 10% decrease in vehicle shipments would lead to a 40% decrease in EBIT.
• Credit rating is below investment grade any further deterioration may significantly affect access to capital markets.
• If FCAU cannot increase profit margins, it will be tough raise capital and compete with competitors.