M&A

5 November, 2009

UPDATE 1-Fiat shares outperform after Chrysler plan

* Chrysler plan above consensus expectations

* Market underestimating Chrysler value to Fiat-broker

* Shares up 2.6 percent

(Adds broker comments, background, share price)

By Stephen Jewkes

MILAN, Nov 5 (Reuters) - Shares in Italian carmaker Fiat SpA (FIA.MI) outperformed the auto sector on Thursday as a five-year plan for Chrysler was seen by analysts as aggressive and potentially risky but potentially value enhancing.

At 0955 GMT Fiat shares were up 2.6 percent at 11.07 euros, while the DJ Stoxx auto index .SXAP was 0.3 percent higher.

On Wednesday Chrysler, 20 percent owned by Fiat, offered an ambitious outlook, saying it would more than double sales, roll out a dozen new models built on Fiat platforms and pay back debt to U.S. taxpayers over the next five years. [ID:nN0421635]

Fiat Chief Executive Sergio Marchionne said Chrysler would break even on an operating basis in 2010 and on a net basis by 2011, adding it had built up cash since it emerged from a fast-track bankruptcy funded by the Obama administration.

"The plan is well above consensus forecasts in terms of volumes and sales, but while clearly ambitious the market is betting on Marchionne to deliver," a Milan trader said.

In a note, Morgan Stanley said Chrysler's plans for sales of $67.5 billion and operating profit of $5 billion by 2014 are much more positive than its own estimates.

"We believe the market grossly underestimates the value of Chrysler to Fiat (which is) our top pick in Europe with over 60 percent upside to our 18 euro target," it said.

Even a partial achievement of targets would make an IPO of Chrysler likely by early 2011, it added. Chrysler said it sees an IPO before 2014 but thinks it highly unlikely before 2011. [ID:nN0477698]

JP Morgan says if sales targets are achieved it would be a remarkable turnaround for Chrysler. "However we do not think they are conservative targets," it said in a note.

The investment bank said if Chrysler hits its targets the value to Fiat could be worth an extra 4.5 euros per share, with room for a 2.5 euros per share upside by 2011.

But if Chrysler's sales do not pick up, the "market may take a dimmer view of Chrysler's prospects, which would suggest as much as 10 to 15 percent downside to Fiat shares".

In October, Chrysler's U.S. sales fell 30 percent even as General Motors Co [GM.UL] reported its first monthly sales increase in nearly two years.

Credit Suisse sees the plan as highly aggressive but while significant cash risks to Fiat investors remain, "we expect a sharply recovering U.S. market to prompt investors to take a more optimistic view on the asset."

The financial projections were the first Chrysler has offered since Marchionne took management control of the U.S. automaker and addressed concerns about the financial toll of Chrysler's continued slide in U.S. sales. (Editing by David Holmes)

Source: http://www.reuters.com