Matt Franz : Zealous For Knowledge

What’s Fiat-Chrysler Worth?

Two years ago in November Fiat-Chrysler traded for 7.50 per share (all numbers are USD). They rose to around 25.00 this January, and are now offered for around 16.50.

That is some serious volatility. Is Fiat today really worth 1/3rd less than it was in January? Or is this a case of Mr. Market being manic-depressive?

Fiat’s Q3 report showed that they are now debt free. By the end of 2018 they expect to have $1.7-2.2 billion of net cash. Furthermore, Fiat recently sold Magneti Marelli for $6.8 billion, cash. This transaction will close in the first half of 2019.

By June 2019 Fiat will be sitting on top of $8.5 billion of cash. This is 1/3rd of Fiat’s current market cap. And this doesn’t take into account the cash the company will generate during the first half of 2019. Excluding cash, Fiat trades at a 4.5x PE.

So what’s the deal? The stock has been weak since Fiat’s brilliant leader Sergio Marchionne passed away. Investors are also worried about peaking US auto sales. But Fiat’s year-over-year US sales were up 15% in September.

At their Capital Markets Day, Fiat said they will be profitable even if US auto sales drop to 10 million. In the depths of the 2008 recession US auto sales dipped to 9 million. Today sales are around 17-18 million.

Fiat is still a cyclical, competitive, capital-intensive business. But every business has an intrinsic value, and it appears Fiat may be below its.

Disclosure: I own shares of Exor, which owns a 29% economic interest and 42% voting interest in Fiat-Chrysler.

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