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 Strong unit sales growth in APAC region; FCAU’s most profitable mass market segment Revenues Restated Reclassified 12 months 12 months 12 months Dec-31-2012 Dec-31-2013 Dec-31-2014 Strong sales growth in NAFTA $57,381.50 $63,040.69 $63,489.68 LATAM $14,585.01 $13,734.08 $10,444.83 Maserati segment; APAC $4,183.53 $6,428.42 $7,576.11 EMEA $23,359.48 $23,872.48 $21,812.02 FCAU’s only luxury Ferrari $2,933.61 $3,215.59 $3,343.22 Maserati $995.45 $2,284.65 $3,349.27 segment after completion Components (Magneti Marelli, Teksid, Comau) $10,587.38 $11,127.18 $10,432.73 Other $1,290.79 $1,279.35 $1,005.87 of Ferrari spinoff Corporate ($4,874.40) ($5,690.30) ($5,143.10) Total Revenues $110,442.35 $119,292.16 $116,310.60
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 29 th , 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 - TEV/EBITDA LTM - Latest TEV/EBIT LTM - Latest P/Diluted EPS Before Extra Latest LTM - Latest Ford Motor Co. (NYSE:F) 1.1x 11.8x 26.7x 14.8x Daimler AG (XTRA:DAI) 1.2x 10.9x 14.6x 9.8x Volkswagen AG (XTRA:VOW3) 0.8x 6.3x 9.8x 7.6x Renault Société Anonym (ENXTPA:RNO) 1.1x 9.3x 13.8x 8.0x Peugeot S.A. (ENXTPA:UG) 0.3x 3.4x 6.5x NM General 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 - TEV/EBITDA LTM - Latest TEV/EBIT LTM - Latest P/Diluted EPS Before Extra Latest LTM - Latest High 1.2x 11.8x 26.7x 14.8x Low 0.3x 3.4x 6.5x 7.6x Mean 0.8x 7.8x 13.4x 10.3x Median 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 Debt 2016 $5,542.58 2017 $4,178.65 2018 $3,776.57 2019 $4,310.56 2020 $3,789.14 2021 $8,675.22 2022 $958.23 2023 $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.
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