FCA backed out of their proposed merger with Renault (which it first laid out publicly on May 27th). And FCA’s shares are likely to pull back in the near term. But ultimately this question is debatable, in our view. As we discussed in our 5/28 note, the M&A option for FCA appeared to have been born out of necessity (or at least significant pressure). FCA is a modestly cash generating enterprise (>€1.5 bn FCF projected for this year). And they are facing significant risks… Cost inflation, Cyclical Risks, Technological Risks. The positive from a combination with Renault was that it offered a path to mitigate the headwinds through (very long term) synergies. We also liked the enhanced liquidity that would have come from the combination. This provided a cushion against the myriad of challenges that we see on the horizon, and it facilitated a near term payout to FCA shareholders.
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KAR hosted a sell-side only analyst day this morning, with presentations from the CEOs and CFOs of both Remain Co and Spin Co. Remain Co’s 2019 EBITDA guidance of $530-$550m, which beat our $517M, was unfathomably bullish as it implies 6% annual growth despite declining 5% in Q1.
KAR hosted a sell-side only analyst day this morning, with presentations from the CEOs and CFOs of both Remain Co and Spin Co. Remain Co’s 2019 EBITDA guidance of $530-$550m, which beat our $517M, was unfathomably bullish as it implies 6% annual growth despite declining 5% in Q1. EPS guide was light due to taxes/spin nuances with interest expense. IAA mgt. came off as calculated/measured rather than brash, and while short on details, we expect more to emerge on margins/int’l strategy during an early 2020 analyst day that it is planning.
Wolfe Research's Senior Autos Analyst Dan Galves hosted a webcast to discuss his initiation on Lyft and Uber, including topics such as challenges for meaningful adoption beyond the most densely populated areas, unlikelihood of pricing converging towards personal ownership costs without AV's, potential for investor concerns about risks to be perpetuated by continued meaningful moderation in US industry bookings growth, and more.
We wanted to flag a few highlights in today's (06/05/19) Wolfe Research Auto Daily....
We attended the inaugural, 2-day GPC analyst day and store tour. Overall, there was a lot of positive energy from the GPC team and the day was informative allowing a better appreciation for the depth of GPC's mgt. bench and their willingness to embrace change. In this regard we were positively surprised. There was no update to NT/LT guidance.
KAR is on track for a late-June spin of IAA. KAR and IAA mgmt. teams are hosting a sell-side analyst day June 5th and are on the road with investors over the next few weeks. Valuation still looks compelling to us. Most investors we speak with cite 15-16x EV/EBITDA for IAA, which implies a 30% discount to CPRT on a lease-adj. basis. 16x on IAA implies Remain Co. is trading at 6.1x (or 4.4x if TradeRev is valued at ACV’s Dec. VC mark).