Fiat Investments Don’t Match 5-Year Plan: Hendrikse

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May 7 (Bloomberg) -- Harald Hendrikse, European autos analyst at Nomura, examines Fiat’s five-year plan for growth and expansion of the Brandon Bloomberg Television’s “The Pulse.”


Is it flawed?

The targets are just super ambitious.

I think the change in strategy to go toward investing more money into the higher premium brands makes a huge amount of sense and was the only way forward for this company.

My problem is where are we coming from?

Given the current debt on the balance sheet, how will we fund the investments we need to get to where we need to get to?

That is what makes me skeptical.

You talked about the fact that they have skills when it comes to powerpoint and they have managed to deliver those successfully.

Give us a sense of scale of what we are talking about.

This is a gear business.

Give us the take on the level of investment that will be required to deliver what they want to deliver.

It is a very tough question.

Our comparison was really with bmw.

They have been building up their business from zero over 40 years.

They have invested probably close on 200 billion euros in their european business.

We are talking about out from -- alfa romeo re-creating a fifth of bmw with a total investment of just 5 billion euros according to the plan.

Compare that with where bmw is today and that makes no sense whatsoever.

If you think about the dealer network, the brand recognition -- there is a great brand name here, but it is a very old brand name and it has been hugely underinvested for many decades.

The scale of investments needed are significantly greater than what the plan is at this stage.

On valuations, this is a lot cheaper because they have gone through such a tough time.

Is it fair to compare it with bmw?

Bmw has been outperforming.

It has had a head start.

This is a ceo that is smart to rid he has the guts to do the changes that many others would not have done, especially in italy.

Look, he is going the right way.

The problem is simply that he does not have the money.

That is the problem.

They're both automotive investments.

The other company has a tendency to lose money, one makes.

European optimism is pretty extreme at this stage.

If you look at the free cash outflows and the returns the company is making, it is difficult to conclude that the stock is good at this stage.

What would you expect to be coming down the road as a credit analyst?

Something from the presentation yesterday is that fiat is forecasting a one billion improvement in net income by 2016. there also forecasting four billion increase in research and development.

The cash flow will deteriorate sharply over the next two years before it starts to improve between 2016 and 2018. if i take the free cash flow deterioration into account, the net debt could peak at 15-16,000,000,000 euros against the plan of 10 billion euros.

Do you think there will be a debt equity relationship change in the future?

The point is is that we have taken the same view -- the current balance sheets are not strong enough to compete in the current automotive world.

I really do not understand why fiat with the share price performance they have had is not raising more equity at this point.

The current balance sheet will restrict the plan significantly.

Thank you so much.

As we head into break, let's talk about the currency markets.

That stuck about new zealand.

-- let's talk about new zealand.

The strength of the economy

This text has been automatically generated. It may not be 100% accurate.


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