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Renault hopes to escape from its 'negative core value' curse

Published 12/06/2023, 01:23 PM
Updated 12/06/2023, 01:36 PM
© Reuters. A new Renault Twingo electric car is unveiled during Renault Group capital market day for its new electric vehicle unit Ampere, in Paris, France, November 15, 2023. REUTERS/Gonzalo Fuentes/File Photo

By Gilles Guillaume

PARIS (Reuters) - Renault (EPA:RENA) hopes it can lift the curse of its negative value next year thanks to the creation of two specialised businesses, Ampere and Horse, and its revamped alliance with Nissan (OTC:NSANY) and Mitsubishi, several top executives said.

Although the French automaker sold more than two million vehicles last year and posted record profits for the first half of 2023, investors effectively are valuing the company's core business at less than zero.

The group's market capitalisation is currently around 10.6 billion euros ($11.43 billion), much lower than European rivals. Stellantis (NYSE:STLA) is worth about 64 billion euros and Volkswagen (ETR:VOWG_p) 57 billion euros, based on LSEG data.

Renault's 12-month forward price-earnings ratio - a key metric for valuing shares - is 2.8, the lowest among European carmakers.

Excluding the value of Nissan shares held by Renault (6.6 billion euros), the net cash position of its automotive business (2.2 billion as of June 30) and financial services of its Mobilize unit (6.1 billion euros on June 30), the remaining "core" value stands at minus 4.3 billion euros for Renault's automotive assets, based on Reuters' calculations and Renault data.

"It is not up to me decide what is the core value of the company," CEO Luca de Meo said at press conference on Wednesday with Nissan and Mitsubishi on their new alliance.

"My job is to actually make sure we do the right things so that the investors and the market understand there is a lot of substance in Renault."

De Meo hopes the listing of Ampere, a "pure player" in electric vehicles and software earmarked for an IPO next spring if market conditions permit, will help give that substance.

In September, de Meo mentioned a possible valuation of up to 10 billion euros, although some analysts valued Ampere at 3-4 billion euros.

Value should also be found in Renault's legacy combustion engine business Horse, co-owned with China's Geely, and awaiting an investment from Saudi Aramco (TADAWUL:2222).

Sources have previously told Reuters the Saudi oil group plans to take a stake around 20% in the joint venture. How large that investment and stake is - which de Meo said could be announced at the end of the year or in early 2024 - will impact its valuation.

"We hope it will gradually become more difficult to say: Horse is worth this much, Ampere is worth so much (...) Everything else is worth minus," CFO Thierry Pieton told Reuters last month.

SIMPLER LINKS TO NISSAN

Renault's negative valuation problem goes back years. The automaker suffers from conglomerate syndrome, where the whole is worth less than the sum of its parts.

To simplify their reading of Renault, investors have repeatedly advocated either a merger with Nissan, or a separation between the French and Japanese partners.

This year Renault and Nissan unveiled a vast restructuring of their alliance, which was founded more than twenty years ago, with a simpler capital structure, the end of common purchasing and more pragmatic ambitions based on individual projects and regions.

"For sure, this movement on the alliance, I think could help," de Meo said. "But we did not do that for the core valuation, we did it (to) find a set-up that would enable us to be more effective, and fast, and concrete."

© Reuters. A new Renault Twingo electric car is unveiled during Renault Group capital market day for its new electric vehicle unit Ampere, in Paris, France, November 15, 2023. REUTERS/Gonzalo Fuentes/File Photo

In a client note this week, Bernstein analysts wrote that Renault's valuation remained surprisingly low despite a 16% year-to-date rise in its stock price.

($1 = 0.9272 euros)

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