Luca De Meo, CEO of Renault Group, during the Ampère investor day
by Gilles Guillaume
Renault hopes to begin to lift the curse of its negative value next year thanks to the creation of its two specialized entities Ampère and Horse and the fruits of its new organization with Nissan and Mitsubishi, said several managers of the diamond group.
Although the French car manufacturer sold more than two million vehicles around the world last year, and posted record profitability in the first half of 2023, the intrinsic value of its core business remains stubbornly below zero.
On Tuesday evening, the group’s market capitalization stood at around 10.6 billion euros.
If we remove the market value of Nissan shares held by Renault (6.6 billion euros), the net financial position of the automotive business (2.2 billion as of June 30) and the financial services of Mobilize ( 6.1 billion on the same date), we obtain a “core” value of -4.3 billion euros for the group’s automotive assets.
“It’s not up to me to decide what the ‘core value’ of the company is, my job is to ensure that we do the right things so that investors and the market understand that there is a lot of substance in Renault”, declared the general director of the diamond group, Luca de Meo, during a press conference on its new alliance with Nissan and Mitsubishi.
This substance must be embodied in Ampère, a “pure player” in electricity and software which could be listed on the stock market next spring if market conditions permit and for which the general director of Renault mentioned in September a valuation of up to ten billion euros.
But also in the historic Horse thermal engine business, co-owned with the Chinese Geely and awaiting investment from Saudi Aramco. Sources told Reuters the Saudi oil group plans to take around 20% of the JV. The announcement of the final amount and percentage – at the end of the year or early 2024, according to Luca de Meo – could change the situation.
“Soon we will be able to show the value of Horse, because we will have an investment from Aramco (…), and when we have made the IPO, we will have a valuation on Ampère”, said last month to journalists, financial director Thierry Piéton on the sidelines of the electrical entity’s capital market day.
“So it will gradually, we hope, become more difficult to say: Horse is worth this much, Ampère is worth so much, billions each time, and (…) everything else is worth (less than nothing),” he said. he adds.
Asked if the anomaly of the negative value could one day be corrected, Thierry Piéton replied to Reuters: “If I didn’t think so, I would resign immediately.”
SIMPLER LINKS WITH NISSAN
The problem of the negative value of Renault’s core business has been rooted for years. A textbook case in financial training on business valuation, the manufacturer suffers from conglomerate syndrome, where the whole is worth less than the sum of its parts.
To simplify the reading of Renault, the financial markets have repeatedly advocated either a total merger with Nissan, or a complete separation between the French and Japanese partners.
Renault and Nissan unveiled this year a vast restructuring of their alliance founded more than twenty years earlier, with a simpler and rebalanced capital structure, the end of joint purchasing and a more pragmatic ambition per project and per region.
“It is certain that this movement on the alliance is likely to help,” added Luca de Meo. “But we didn’t do this for ‘core value’, we did it (to) find a system that allows us to be more efficient, and quick, and concrete.”
According to him, the results of this new approach with Nissan and Mitsubishi will be the true judge of peace in the eyes of the market.
In a note published recently, Bernstein analysts recalled, through a theoretical experiment, that the valuation of the diamond group remained surprisingly low despite an increase of around 16% in the stock since the start of the year.
“That it is possible today, for example, to use 10 billion euros of excess cash at Stellantis or Volkswagen to buy Renault demonstrates the absurdity of automobile valuations and the need for better capital allocation “Even Renault, with its current resources, could buy Renault,” they wrote.
(Reporting by Gilles Guillaume, edited by Kate Entringer)