Analyst note, Richard Hilgert, 11/12/2014
We have lowered our fair value estimate on no-moat 4-star-rated Morningstar Best Idea Fiat Chrysler Automobile to EUR 12 per share from EUR 14 based on our estimated fully diluted year-end share count. The company announced pricing and share conversion for the common stock secondary and the mandatory convertible securities offerings. At a foreign exchange rate of $1.238 for every EUR 1, our fair value estimate for the NYSE-traded shares is now $15, down from $17.
We have assumed $2.875 billion ($2.5 billion and a $375 million green shoe) in mandatory convertible bonds issued. At the maximum conversion rate of 9.0909 shares per $100 notional amount, there are 261 million dilutive shares assuming the underwriters utilize the green shoe. As of the last amended prospectus on Dec. 4, Fiat Chrysler's diluted shares outstanding excluding treasury shares were 1.185 billion.
The company's 100 million (87 million shares and a 13 million-share green shoe) secondary offering on the NYSE includes roughly 35 million shares issued from Fiat Chrysler's treasury. It also includes common shares that FCA intends to issue to replace approximately 54 million shares that were canceled after being tendered to the company in the cash exit rights when Fiat Chrysler was merged under the Dutch holding shell.
In total, with about 261 million shares from the convertible bond issue, another 65 million incremental shares from the common stock offering (assuming both the bond and the stock green shoes are utilized), and roughly 13 million shares of dilution from stock grant and option plans, we think there will be approximately 1,559 million diluted shares outstanding at year-end. At the end of 2013, we had used a diluted share count of 1,229 million.
We think shares of FCA are appropriate only for those investors who are willing to accept the risks of a turnaround company with a highly leveraged balance sheet operating in a cyclical, highly competitive, capital-intense industry.
Læs hele analysen af Fiat Chrysler Automobiles her.
Bull og Bear scenarier for Fiat Chrysler Automobiles
Bulls say
- Fiat's alliance with Chrysler provides scale and purchasing power that it would otherwise struggle to achieve on its own. Global expansion of Jeep, Maserati, and Alfa Romeo strengthens average revenue per unit.
- Leading share position in Brazil and presence in other developing markets enhances potential top-line growth prospects beyond that of Fiat's domestic market.
- On a relative basis, Fiat ex-Chrysler has one of the largest cash positions of any auto manufacturer, alleviating high leverage concerns.
Bears say
- The global auto industry suffers from overcapacity that increases pricing pressure, in turn limiting economic profits.
- Fiat's and Chrysler's workforces are highly unionized, a threat to profits if workers demand wage increases or refuse labor cuts.
- Fiat has a high level of financial leverage that, in the event of substantial volume downturn, would divert significant cash from reinvestment in the business to debt service.
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