It was not the best opening day at the stock market for FCA (Fiat Chrysler Automobiles) as shares dropped around more than a third of its market value. And the sole reason is – The Italian American manufacturer started the trading without its crown jewel, the supercar arm of Ferrari.
Fiat Chrysler distributed the 80% stake it was holding in Ferrari to the shareholders on Sunday, thus ending 30 years of exclusive control over the maker of the most iconic and fastest cars since 1969. FCA confirmed that the separation of Ferrari from the group has been completed on 3rd January, 2016. With the spinoff completed, Fiat Chrysler Chief Executive Sergio Marchionne can concentrate on his ambitious growth plan leading to 2018 that calls for €48 billion in investments and big gains for the Jeep and Alfa Romeo brands. FCA’s market cap after the selling of Ferrari is down to €10.5 billion from €16.6 billion. The spinoff will also affect FCA’s bottom line, as Ferrari accounted for 2.6% of FCA’s total revenue and 11% of adjusted operating profits.
Ferrari has been trading in the NYSE (New York Stock Exchange) under the symbol RACE. Most of the shares have been actually distributed among FCA Group owners who have been loyal and supported FCA since they acquired Ferrari. The separation was revealed in October 2015. It resulted in Ferrari needing more funds to complete its five-year business plan. The plan for Ferrari is to expand the brand by selling an additional 2000 models every year. There is also an aim to boost retail by increasing sale of clothing and Ferrari accessories. Increased investment in the company will also go in the pipeline project of Ferrari Land in Barcelona, following the success of Ferrari World in Abu Dhabi.
As shown by Bloomberg here,
The decision of spinning off Ferrari was a brilliant idea by the folks at Fiat-Chrysler.
Ferrari was valued recently at a staggering $9.1 billion, as compared to Fiat-Chrysler which was $11.6 billion. This is a really good figure for a company that sold just 7,255 cars as compared to the company having sales of over 4 million. The combined market cap of both companies has gone up to $21 billion, compared to $15 billion of FCA before the spinoff.
The Price Earnings ratio of Ferrari is 26, which is much higher than any other Automotive company, except Tesla.
Source of graph: Bloomberg View