FIAT CHRYSLER: BUY

The rationale for this trade is not new. The Ferrari IPO process is rumoured to be starting on Friday which should refocus the market on the SOTP angle.

It remains to be seen how much they are able to raise, but anywhere near the 10bn EUR rumoured and at these levels you are getting the rest, including the likes of Jeep, Maserati, Alfa & RAM which will generate ~9bn in EBITDA this year, for €4bn EUR.

The structure of the spin-off will take form of an IPO of a 10% stake, while distributing a 90% stake to shareholders. The Ferrari family remains in the same position as today holding 10% of independent Ferrari.  Based on this structure, and our expectation of successful IPO,  FCA’s shares should see a significant appreciation.

Also, FCA is looking to reduce its debt from EUR 11bn to EUR 7bn, and in addition to the Ferrari dividend there is likely to be a capital increase via a sale of treasury shares and a mandatory convertible issue. FCA might spin-off debt into Ferrari, hence becoming less levered. In addition they will receive cash from the IPO, which will lead into a significant reduction of debt.

The IPO will provide them with liquidity, and increase the value in those remaining assets than the current share price is giving them credit for, even assuming margin impact from Diesel reduction. Given the consolidation angle as well, it looks attractive after a 30% pull back.