By: Moderatore on Lunedì 07 Aprile 2003 21:20
FIATa vende Fiat Avio
-------------------------------- Breakingviews -------------
Fiat: Fiat's banks may breathe a sigh of collective relief that the Italian industrial conglomerate's disposals did not collapse into fire sales. Its shareholders, however, are still in for a difficult ride. Folding in the sale of aerospace components maker FiatAvio to Carlyle, Fiat has harvested E3.2bn of disposals so far this year.
Most importantly, it managed to offload the two largest of them, Avio and insurer Toro, for decent prices. The fire-sale scenario feared six months ago has not emerged. That pleases Fiat's banks, as they are on the hook for a E3bn debt-to-equity swap. The more money Fiat brings in now, the less they have to plug in later.
But equity investors in Fiat do not yet have reason to cheer. While firm prices were nabbed for Avio and Toro, the value of Fiat's core auto business has certainly eroded since last autumn, as the company's share price implies. Fiat's assets, taking into account the announced disposals, amount to about E20bn, down from E26.2bn when breakingviews last calculated their value in October.
The good news is that as a result of these disposals, liabilities have also fallen, to about E15.7bn. This is largely due to the decline in net debt to about E4.5bn. Other liabilities like securitised trade receivables and pensions reserves, as forecast by Credit Suisse, are mostly unchanged. Subtract these from the value of Fiat's assets, and investors are left with a sum-of-the-parts value of about E4.3bn, or E9.9 a share. At first blush, that looks like a whopping 62% premium to the current share price. Time to buy!
Not so fast. While Fiat's assets will not be unloaded at bargain basement prices, the group is still an unwieldy conglomerate with problems aplenty. There are, essentially, two ways to look at it, depending on whether one is a pessimist or an optimist. The latter takes the value of Fiat's assets, minus liabilities, and applies a 30% conglomerate discount. That puts Fiat shares worth about E6.9, or 13% above the share price, suggesting the stock is fairly valued with some potential upside.
The pessimist, on the other hand, applies a discount to the assets before the liabilities. And this may be the more intelligent route to consider. After all, why should Fiat's debts be discounted if the banks can seize its assets so easily in a debt-to-equity swap? Attaching a 10% discount to the assets before stripping out liabilities values Fiat at E5.3 a share, well below the E6.10 current share price - so much for optimism