Fiat demerger lifts value, but targets tough: analysts

MILAN (Reuters) - Fiat's plan to break off autos from its industrial units could lift the combined value of the group by 20-40 percent but doubts persist about its ambitious targets as the auto industry recovers from a crisis.

Creation of a standalone auto company could also help Fiat if it looks for more tie-ups with other car makers.

"A demerger simplifies the structure and offers each shareholder the choice where to put his or her money," wrote Credit Suisse analyst Arndt Ellinghorst in a report.

Fiat Chief Executive Sergio Marchionne, targeting a bigger role for Fiat among world automakers, laid out five-year plans on Wednesday to demerge autos from the better-performing Iveco truck and CNH Global NV farm equipment units.

The Italian-Canadian executive, something of a guru in the auto sector for his dramatic turnaround of Fiat, Italy's biggest industrial group, also set out revenue and profitability targets across the board.

They feature a near-doubling of revenues to 93 billion euros by 2014 with inclusion of Chrysler. Fiat took management control of the U.S. car maker last year.

The combined Fiat and Chrysler would produce 6 million cars by 2014, which Marchionne called "the minimum required to be a competitive global player."

Analysts said breaking off the cash-burning auto unit from the cash-generating Iveco and CNH businesses could strip out a discount to the share price, and Ellinghorst raised the price target on the stock to 14 euros from 11.5 euros with an "outperform" rating.

Michael Tyndall at Nomura said the rule of thumb for conglomerate discounts was 25-40 percent, adding that he didn't see any reason why Fiat should be an exception.

Banca IMI analyst Monica Bosio wrote: "The creation of an automotive-listed entity could help the group to find new alliance opportunities with other players"

But regardless of whether the company managed to find a partner, analysts said, demand would have to pick up.

"If economic climate goes back to what it was two years ago there are problems," said Alessandro Frigerio, a fund manager at Milan's RMJ SGR.

"To produce cars you need to reach a critical mass but then you have to sell them."

TARGETS IN QUESTION

The skepticism about targets prevailed despite Marchionne's record of delivering on targets since becoming chief executive in 2004.

"Can any or all of Fiat get anywhere near its targets?" Bernstein Research analyst Max Warburton asked in a note.

"Fiat Auto targets look simply unrealistic," he said.

Fiat must face meeting its targets in an auto market suffering from over-capacity and that has been supported by government scrappage incentives.

The car maker forecast a 30-percent drop in the Italian auto market from April to December and a 15-percent drop in the European market.

Many industry executives have warned that volume car brand sales could see a sharp fall in the second half of the year when most plants have worked off a backlog of orders for subcompacts.

On Thursday, Marchionne said in Rome that Fiat's financial holdings, as well as Turin daily newspaper La Stampa, would remain in the parent group after the split-off.

Fiat shares fell 1.4 percent to 10.45 euros by 1022 GMT. The STOXX 600 auto sector index was down 0.8 percent.

Fiat rose almost 12 percent on Tuesday and Wednesday, driven by the demerger and industrial plan.

(Additional reporting by Stephen Jewkes and Giuseppe Fonte, Editing by Sitaraman Shankar)