Renault: the end of a buoyant wave on the stock market?
If certainly, at the end of June, Renault still displayed all the assets of a star of the stock market, such no longer seems to be the case now. Everything still seemed rosy on that date, so much so that the automotive group had then clearly raised its financial objectives for 2023. The manufacturer then surfed on the wave of a first half conducted at full speed, thanks to the launch of new models. carried out successfully, the arrival on the market of the Renault Austral ensuring good commercial results.
UBS lowers Renault’s rating, even advising to sell
But now the wheel is turning for Renault. The bank has indeed lowered Friday the rating assigned to the group, from “neutral” to “sell”, with a goal of neck. At the same time, reducing its target price to 31 euros against 42 euros previously. This change in recommendation immediately impacted the value of the title of the automotive group on the stock market, especially since advice to “sell” is relatively rare. Results of the race: Renault shares fell by 4.7% on the Paris Stock Exchange from 11 a.m., posting the largest decline in the index.
UBS expects performance to deteriorate in 2024
According to UBS, Renault is close to having reached a peak in terms of financial results. If the Swiss bank is still counting on high financial results for the coming quarters, not even ruling out the possibility of seeing them improve further, it nevertheless believes that most of the group’s key indicators should no longer improve.
UBS estimates that Renault’s profitability will peak this year, expecting an operating margin of 5.9% in 2023, then falling to 4.7% in 2024.
Model prices can’t show increases forever
Main elements put forward by UBS to argue its position: the manufacturer’s pricing policy.
If UBS notes that “Renault’s pricing has improved by around 20% since 2020 and is now at the level of its sector comparables”, it estimates that as a result, the contribution of price increases to results will therefore fade away. Understand: Renault will not be able to count indefinitely on an increase in the prices of its models to obtain good financial results, the price policy of other manufacturers not allowing it to follow such a strategy.
Renault very exposed to competition from Chinese manufacturers
According to UBS, “mass market” automakers like Renault are the most at risk of losing market share in Europe, due to increased competition from Chinese groups and their offensive on the Old Continent. The offensive of BYD, Chinese specialist in electrified vehicles being highly likely to cause some harm to the French group.
“With around 70% of sales in Europe and a European market share of 10%, Renault is one of the most exposed names here”, indicates UBS.
The establishment notes that the Chinese BYD and the American Tesla intend, between them, to increase their vehicle sales on the Old Continent by 2.5 million units. To be compared to the global market of currently 15 million cars. Ambitions that Renault could find difficult to counter.
UBS lacks light on Ampère
Another element at risk according to UBS: the lack of visibility on the future of Ampère. Company which will eventually combine Renault’s EV and on-board software activities and which the manufacturer intends to IPO in the spring of 2024.
UBS estimates that it will be difficult for Ampere to meet its medium-term objectives: sales of 1 million electric vehicles in 2031. The Swiss bank expects 800,000 vehicles in 2030 and an operating margin of around 10% in 2030.
In the end, therefore, according to UBS, the IPO of Ampere should not allow the creation of value, the objective nevertheless sought by Renault in this operation.
“Ampere’s ability to achieve its long-term goals, which we consider ambitious and with a limited margin of error, is highly dependent on external factors, such as battery costs and the competitive landscape, as well as the costs of materially lower production,” the bank said. Which adds that “the valuation of Ampere is strongly focused on the 2025-30 horizon, for which we have too little visibility”.
In its base scenario, UBS values Ampere at 3-4 billion euros. Renault, for its part, has never given a valuation target for its future subsidiary. However, Reuters and Bloomberg evoke a figure that may be around 10 billion euros. And previous analyst estimates were between 5 billion and 30 billion euros. Finally, UBS considers that Renault’s structure after this operation “will become increasingly difficult to read”. Taking the example of the “mixed” results of Porsche’s IPO at the end of 2022, which had little effect on the performance of the stock of the parent company Volkswagen.
Sources: UBS, Reuters, Bloomberg
