(BFM Bourse) – The automaker still plans to list this promising division separately. But there are risks of cannibalization with the Renault share and the market context could be unfavorable to fully crystallize the value of this asset.
It is perhaps Renault’s project that is attracting the most market attention. The diamond group recently confirmed its plan to segregate the accounts of Ampere, its future subsidiary dedicated to electric vehicles and software (on-board software), with a view to listing on the stock exchange.
On Thursday, Chief Financial Officer Thierry Piéton explained that the company had surveyed investors on the initiative and the feedback confirmed both the need for Ampere as well as the market’s appetite for the investment opportunity. The manager added that the manufacturer was looking for “the most favorable window of opportunity” to carry out the IPO. This window should “most probably” occur in the first half of 2024, he continued. The group previously indicated that it wanted to make this introduction from “the end of 2023”.
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What valuation?
Mentioned then confirmed last year, in particular during the day dedicated to investors in November, this operation has a clear and usual logic on the stock market. The market often tends to prefer separately listed activities. Listing Ampere on the stock market should thus help to crystallize value. Renault has never given a target valuation objective for its future subsidiary, but could say more during an investor day dedicated to Ampere and scheduled for the second half of 2023.
Indiscretions from the Reuters and Bloomberg press agencies, however, reported a potential valuation around 10 billion euros. Bernstein, for his part, calculates an enterprise value (therefore debt and cash included) ranging from 20 billion to 30 billion euros, by applying a multiple of two to three times the sales expected by 2025 (a little less than 10 billion euros in 2025, according to projections by the design office). But Barclays turns out, conversely, much more cautious, judging “globally appropriate” a valuation of only 5 billion euros.
The float issue
Beyond these questions of amounts, is this operation completely appropriate for the future of Renault and Ampere? Segregating the accounts is certainly a good idea in the sense that it gives the market indications on the performance of Renault’s electrical activities. Going public carries its share of risks that should not be underestimated. “Do we really need an IPO?” Asked Bernstein last week, who nevertheless has an advice to “outperform” the group.
The float can be a source of questions. The automotive supplier Faurecia, before seeing PSA leave its capital (via a distribution to its shareholders) following the merger with Fiat Chrysler to give birth to Stellantis, suffered from a liquidity discount on the market due to limited float.
On this point Renault intends to keep “a strong majority” in the capital of Ampere. The Japanese ally of the group with the diamond Nissan intends to take up to 15%. In addition, the American technology group Qualcomm as well as Mitsubishi, the third member of the Renault-Nissan-Mitsubishi alliance, also intend to invest. Assuming that their holdings are between 2% and 5%, the free float could range between 20% and 30%. Renault CEO Luca de Meo has repeatedly indicated that the group knows the rules of the game on this point and intends to leave enough float for investors. “The minimum free float is probably around 20%”, considers Michael Foundoukidis, analyst at Oddo BHF.
It should be emphasized that a limited free float does not necessarily prevent the good performance of an IPO. The success of the listing of Porsche, a subsidiary of Volkswagen, demonstrated this well last fall. Conversely, the IPO of Traton, a truck manufacturer also belonging to Volkswagen, had not been a great success in 2019. The float then represented only around 11.5% of the capital.
Risk of cannibalization?
Another risk surrounds the rating of Ampere: that of cannibalization, that is to say that investors arbitrate the two actions by selling Renault shares to buy those of Ampere. This phenomenon was observed during the introduction of Porsche by Volkswagen, with the fall in the action of the “mass market” car manufacturer while its very high-end subsidiary experienced thunderous first steps on the stock market (the share price of Porsche is currently trading 30% above its IPO price in October).
“The IPO is not necessarily a good idea, we can clearly see that the crystallization of value takes place in the ‘newco’ (the newly listed company, editor’s note) and not at the level of the holding company (the house- mother) or even to her detriment”, underlines an analyst.
Questioned during Renault’s general meeting in May on this specific point, the group’s financial director, Thierry Piéton, explained that by creating a “franchise dedicated to electric vehicles, as efficient as possible, with all the chances of point of view of resources” – and therefore by appealing to the market – the group would preserve Renault’s balance sheet, and would thus not draw on its liquidity reserves. “The advantage for the Renault shareholder is that by doing this we will allow Ampere to develop more easily, to grow faster, to develop more products, to better integrate the value chain. So in fact if I am the shareholder of Renault, I must see the potential IPO (IPO, editor’s note) of Ampere as a lever that will improve the performance of the group and therefore of Renault as a whole”, detailed the manager.
To make his remarks concrete, Thierry Piéton declared “that it was better to be a 75% shareholder of something that makes 2 billion euros than to be a 100% shareholder of something that makes 0.5 billion to 1 billion euros”, specifying however that these figures were taken “at random”, just for illustration.
A context not necessarily obvious
Beyond these technical considerations, there remains the market context. “The timing is difficult, everyone has in mind that Tesla does not hesitate to cut its prices and sacrifice its margins to chase market share and, moreover, that many Chinese groups such as MG (subsidiary of SAIC , Editor’s note) and BYD have launched an offensive on electricity with very low prices, taking market share there too”, argues the previously mentioned anonymous analyst. “It’s not necessarily an environment conducive to an IPO in the electric vehicle,” he adds.
“Investor appetite for EV companies has waned in recent months, putting pressure on (Renault’s) management to explain how Ampere’s investment case is different,” Jefferies analyst Philippe Houchois wrote in a March 20 note cited by Bloomberg.
“We are concerned that Ampere’s IPO plan was established several years ago in a very different climate, and we encourage the Renault team to re-examine its plans in light of current developments and the ‘lack of valuation success for other spin-offs in the sector,’ Bernstein analysts warned in a note released last week.
Michael Foundoukidis is more nuanced. “Ampere’s IPO is not a foregone conclusion, due to competition with Chinese groups in the electrical sector in particular. But by carrying out this IPO in the first half of 2024 and not at the end of 2023 (like the group therefore seems to foresee it, Editor’s note), Renault would probably offer greater visibility to the market”, explains the analyst from Oddo BHF.
“The group would reduce the delay in terms of calendar compared to the financial equilibrium targeted on Ampere (2025 on the margin and cash flow, editor’s note). And the operation could then be based on the launches, planned at the beginning year, of two key electric models, namely the new Scenic and the Renault 5”, he adds.
It should also be remembered that the diamond group has always ensured that it would be attentive to market conditions, not excluding postponing the IPO if these conditions were not met. But from there to abandoning it completely? Barclays estimated in any case at the end of May that the company could abandon this operation if the valuation of Ampere did not exceed 5 billion euros.
Julien Marion – ©2023 BFM Bourse
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