Fiats Issue Is Debt Not Profit – US-FOREX.US
There is a chance that Italian carmaker Fiat will surprise the market with a return to profitability on Wednesday. However, the market will be more concerned about the firm’s progress in lightening its cumbersome debt load.
Fiat
could post a net profit of between 31 million euros to 40 million euros according to some analysts who spoke to Forbes, despite a market consensus of a net loss of around 110 million euros . However, the firm’s debt load will be the real market mover. “For Fiat the issue is debt and is key to understanding the company’s behavior,” said Gabriele Gambarova, an analyst with Banca Akros in Milan. “If the debt reduction meets consensus expectations, then shares will fall. But if debt reduction is better than consensus, the stock may recover more than expected.” Debt rose to 6.6 billion euros at the end of March from 5.9 billion euros at the end of 2008, but consensus estimates suggest Fiat may be able to bring that debt down by around 650 million euros to 6.0 billion euros . Gambarova believes debt could even fall by 1.1 billion euros , to 5.5 billion euros .Fiat shares have gained 2 euros in the past 10 days and were down 0.5%, to 7.69 euros in Monday afternoon trading in Milan.”The rally is already happening but expect to see some positive reaction on Wednesday,” said MedioBanca analyst Massimo Vechio, who expects the company to post a 40 million euro net profit for the quarter.
Opinion is divided on Fiat’s performance in the second quarter, even though the firm has benefitted from scrapping scheme incentives in place in Italy. This is partly because of differing assumptions on tax charges. Centrosim analyst Carlo Drago expects Fiat to post a net loss of 89 million euros . So-called “cash for clunkers” programs have been introduced across Europe, slowing losses within the auto sector in France while boosting sales in Germany. .Citigroup is positive on Fiat, predicting the carmaker will “lighten the gloom” in the industry, while broker Cheuvreux expects the Italian carmaker to be the only mass-market company to post a profit in the first half of 2009. JP Morgan, however, told investors to expect negative surprises from Fiat: “We think investors will increasingly focus on 2010, when the post-[scrapping] hangover is likely to result in a volume decline in Western Europe.” UBS also said there were fresh debt concerns affecting the company’s bonds.Analysts will be also expecting fresh details from the car maker’s ouspoken Chief Executive Sergio Marchionne about Chrysler, after Fiat acquired a controlling stake last June.