Global Insight Perspective | |
Significance | After appreciating considerably over the last six months, Fiat's share price plunged yesterday even though the carmaker is making firm progress with its overall turnaround strategy. |
Implications | Fiat's CEO dismissed rumours that the share-price decline was linked to the corruption scandal at Italian football club Juventus, which is also controlled by the Agnelli family, but instead suggested that the financial markets are rather unstable at present. |
Outlook | In a sign of good faith, Marchionne bought 20,000 shares to support the company's stock prices and reiterated that both from an industrial and financial point of view, Fiat is performing well. Yet, some believe that the momentum generated by the Grande Punto may be short-lived as competitors are also targeting the B segment. |
'Unstable Financial Markets'
Speaking at the presentation of the new Fiat Ducato, a light commercial vehicle (LCV) co-produced with PSA Peugeot-Citroën, Fiat Chief Executive Officer (CEO) Sergio Marchionne confirmed that the carmaker's first-half results were in line with targets and that the company is firmly heading towards a recovery. However, Fiat's share price fell to a two-month low yesterday, suggesting that investors are not entirely convinced about the company's turnaround and product plans.
Marchionne confirmed the carmaker's full-year financial objectives despite the fact that car sales have been ahead of predictions in the last few months; the Fiat CEO maintains that it is too early to make any change to the profit forecast. Fiat will publish its second-quarter profits on 27 July. For the full year, Fiat is targeting a consolidated operating profit of between 1.6 billion euro (US$2.05 billion) and 1.8 billion euro, with an estimated net profit of 700 million euro. The Italian carmaker is confident that the recent strong performance of the Grande Punto model (see Europe: 16 May 2006: April New Registrations Drop in Western Europe, Grande Punto Lifts Fiat) across Europe will support its financial recovery, and it expects new products in the pipeline, including the new Ducato van, Fiat Cinquecento and replacement Stilo, to maintain the current sales momentum.
Outlook and Implications
Fiat's share price has escalated in recent months, firmly in line with the remarkable sales performance of the new Grande Punto, demand for which has risen even though the overall European market has been declining. However, the company's share price dropped to a two-month low of 9.20 euro yesterday, a development that Marchionne immediately described as 'an absolutely irrational reaction'. Fiat's CEO reiterated that from an industrial and financial standpoint, the company is faring very well, evidenced by the fact that Fiat is actively looking into buying an 11.7% stake held by Italian bank Mediobanca in Ferrari.
In a separate report, it was stated that Marchionne and Chairman Luca Cordero di Montezemolo had bought 20,000 shares each to support the company's stock prices. Although some have suggested that the share-price decline was the result of profit-taking after a recent strong run (Fiat's share price has almost doubled over the past six months), many investors are also concerned that the company's recovery is precarious, and this feeling may have been exacerbated by the corruption scandal currently engulfing Italian football club Juventus, which like Fiat is controlled by the Agnelli family. Marchionne, however, dismissed any links between Fiat and Juventus, and suggested that the main cause of the sudden share-price decline was unstable financial markets, which appear to have pushed other auto stocks down lately.