Fiat Chrysler Automobiles NV NYSE: FCAU Price as of 10/06/15: - - PowerPoint PPT Presentation

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
• utstanding ($19.06 of resource conversion value)

Investment Catalysts

• Ferrari spinoff will help reduce debt levels and increase profitability
• f 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 Restated 12 months Dec-31-2012 Reclassified 12 months Dec-31-2013 12 months Dec-31-2014 NAFTA $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

• f 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
• f 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 14.8x 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 - Latest TEV/EBITDA LTM - Latest TEV/EBIT LTM - Latest P/Diluted EPS Before Extra 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.