Fiat's key car making unit Fiat Auto could just scrape a profit in the fourth quarter as its new Punto model drives sales, putting the group in a strong position for 2006 and favouring a return to debt markets, analysts said.
A Reuters poll of 10 analysts showed the average of expectations was for a trading profit at the unit of €8.5 million in the fourth quarter of 2005 on revenues of €5.786 billion.
Figures from the previous year will be restated to comply with International Accounting Standards IAS, giving the unit a trading loss of €156 million in the fourth quarter of 2004 and a loss for that year of E822 million.
Fiat reports preliminary results will be released on Monday.
"It's really crucial to assess whether the Auto improvement can continue," said Cyril Benayoun, autos analyst at BNP Paribas. "New models will be the driver in the future after the cost-cutting."
Fiat's CEO Sergio Marchionne has been trimming costs and striking alliances with other car makers such as Ford Motor Co. to pull the Auto unit back to profit.
The new Punto model made its debut in September and Fiat aims to sell 360,000 this year, but will face tougher competition when rivals like Peugeot and Opel launch their own city car models.
Fiat sales rose 3.5 per cent in Italy in December, bucking a 6.33 per cent fall in the overall market although its market share slipped back below 30 per cent.
Analysts said a strong set of results from Ford this week and encouraging car sales in Brazil - up a total 8.6 per cent in 2005 - had helped keep the mood positive for Fiat's figures.
"I think we'll see the Punto and Brazil doing well," said Eric Michelis, analyst at SG Securities. "I suspect the results will show Fiat is in a good situation."
Markets such as Brazil are providing a rare bright spot for carmakers saddled with chronic overcapacity and facing slow growth in major markets, intense price competition and a spike in raw materials costs which weigh heavily on operating margins.
For the Fiat group, fourth quarter trading profit was seen on average at €276 million on revenues of €12.894 billion, giving a trading profit for the year of €917 million, compared with a restated figure of €50 million in 2004.
Mr Marchionne said earlier this month that Auto was expected to meet or beat its target of a €317 million loss for 2005 and added it would post a profit in 2006, while for the group, Fiat has said it hopes for a net profit in 2005.
Analysts said if these expectations are met, Fiat was likely to confirm or even raise guidance for 2006, where it currently targets group net profit over €700 million and positive cashflow with group investments of €4.3 billion.
A reiteration of forecasts - or, better still, pushing them higher - would mean Fiat could be in a good position to return to debt markets, analysts said.
"The key is really what they say for 2006... It would be an ideal time to issue a bond after confirming 2006 targets and showing the new Punto is performing well," Mr Benayoun said.
Fiat plans to issue a bond in 2006 and Mr Marchionne has said it would probably come in the first six months of the year and that the issue could be over €500 million.