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Finmeccanica (FNC IM): Forward

We are happy to present a research update and also a response to an anonymous author’s bearish case for an investment in Finmeccanica. Despite the best efforts of Caesar Augustus, as the author calls himself, to portray an investment case in Finmeccanica as an outright foolish one, the author’s case is anchored on historical events, false assertions and incorrect hypotheses of both current and future business prospects of the company. We are most grateful for the earnest attempt at a bearish argument against Finmeccanica, as we publish research specifically to elicit a debate. Augustus has affirmed our bullishness in finding no deal-killing reasons to avoid the shares.

Just after the bearish article was published, which speculated that restructuring would be impossible to achieve and the plan would be delayed, the company hosted an investor day which presented an industrial plan with exactly the same components we mentioned in our original report: reductions in R&D and capital spending, cost cuts, expanded operating profit margins, debt reductions and non- core asset sales. Near-term improvement in guidance includes no heroics, nor all the cost savings identified by new CEO. Trading at 5.4x ’16 EBITDA (47% discount). Significant upside remains.

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Past performance is no guarantee of future results.

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