BOOKING +10.66%

Closing trade as we feel a lot of the bad news is in the price and €6 has proved to be a decent floor medium term.

We are closing here for +10.66% and will look to re short around the €7 level.



Tuesday • 03 May 2016 • 13:10

A favourite amongst auto analysts due to its restructuring potential and ‘cheap’ p/e multiple. But at this stage in the cycle, how much is left to play for?

Arguably the near term restructuring angle is played out post Ferrari spin off. Part of the reason FCA has held up so well was an expectation of some form of alliance in the US. That never came. Ford, GM, UG – all ruled out. Transformative M&A is looking less and less likely.

On the call Marchionne confirmed that there were no plans to spin out/sell the component business and given the trajectory of Maserati now is not the optimal time to be trying to monetise that.

Marchionne also spoke of pricing pressures in the US which will do nothing to alleviate the fears of peak (7%) margins in NAFTA despite a solid quarter. The advent of car sales resulting from Finance is a well documented topic, Fiat have leverage to this.

Despite assurances that the €1.5bn of cash burn was related to working capital outflows the market has seen this before. The leverage is an ongoing issue and the reason why it trades on cheap P/E multiples. It could also become a hindrance in terms of funding needed for its investment plan in coming years.

Let’s not forget the ongoing investigation into emissions – they are on the hook in Germany.

It is a massive EUR play with 70% of revs coming from NAFTA vs only 20% from Europe. We fear for the trajectory of the EUR/USD. If it is early recognition of US economic weakness then it will hit Fiat both in terms of revenue generation, and translation.