It takes nerves of steel and increased powers of concentration to be a Renault shareholder, because new ideas flow quickly.
A few years ago, Renault CEO Luca de Meo launched his “Renaulution”, a long-term strategic plan to stop piling them up and selling them at low prices. This plan, which favors profitable sales at the expense of volume, is still in the works, recently updated. And investors have observed the continuation of discussions on the future of the alliance with Nissan.
Meanwhile, de Meo launched his latest wheeze with a plan to split the company into five, which would improve efficiency and increase shareholder value. Opinions on the merits of the split are mixed, but Moody’s Investors Service reported approvingly on Renault’s outlook.
Renault shares are slowly and sometimes erratically recovering from the debacle after Russia invaded Ukraine and its shares plunged more than 40%. Renault generated 10% of its revenue and around 12% of its operating margin in Russia in 2021.
Shares recouped much of the loss, buoyed by hopes of successful talks aimed at finally settling the long-term alliance with Japan’s Nissan. Renault owns 43% of Nissan and the Japanese company owns 15% of Renault, without voting rights. France owns 15% of Renault. The talks have produced a lot of talk, but no action so far.
After reviewing the updated Renaulution plan, Moody’s raised its outlook from “stable” to “negative”.
“(This) reflects Renault’s improved profitability in the first half of 2022, and expectations of further improvements driven by the execution of the Renaulution strategic plan,” said Moody’s analyst Matthias Heck.
“(the upgraded rating) is based on the expectation that Renault’s credit metrics will improve to the comfortable levels required for the current rating category in 2023, despite the increasingly challenging macroeconomic environment and downside risks. execution related to the new strategic plan,” said Heck.
Under the revamped plan, Renault plans to boost operating margins to 8% by 2025, and more than 10% in 2030, from 5% expected this year. He will restore dividends from next year after a three-year absence. Operating cash flow will be more than 2 billion euros between 2023 and 2025, compared to more than 1.5 billion euros in 2022.
De Meo also plans to split Renault into five “stand-alone” companies to increase profitability and increase Renault’s market valuation as a whole and therefore value for investors.
The 5 units are
· Ampere, which will be strictly electric vehicles and their software.
· Power, including internal combustion (ICE) and hybrid engines from Renault and its subsidiary Dacia, as well as hydrogen. Project Horse will be a 50/50 venture with China’s Geely to manage ICE and hybrid production as they phase out the market to battery electric vehicles (BEVs).
· Alpine will be for electric sports cars.
· Mobilize will manage car-sharing and mobility services as part of a joint venture with China’s Jiangling Motors.
The Future is Neutral will seek material reuse and battery recycling
French automotive consultancy Inovev said Renault appears to be focused on the problems and partners of the future and is rebuilding accordingly, setting “very athletic” goals.
Hamburg’s Berenberg Bank said the 5-split will allow for increased operational flexibility, but could raise governance and valuation concerns.
“This should help Renault maintain much-needed agility in a rapidly changing environment, as well as continue to operate an asset-lean model,” the investment bank said in a report.
“That said, the multiplication of layers within the structure of the Renault group could complicate governance. This may initially trap some of the value released by a more transparent reporting structure as well as a separate listing of EV activity,” Berenberg said.
Investment bank UBS liked the basics of the plan, including the ambition to favor value over volume, but said Renault had never achieved such profitability, while the recent improvement in the results of the industry has relied on the strong price mix that is unlikely to continue as it moves from undersupply to oversupply.
Moody’s also pointed to possible issues with the more complicated governance structure, but liked the long-term profit targets.
“The increase in targets shows that Renault is progressing faster than expected in executing the strategic plan, thanks to continued efficiency measures, positive price effects and the launch of new models,” Moody’s Heck said in a statement. report.
The report also highlighted the elephant in the room; what does the future hold for the alliance with Nissan, which Moody’s says has “substantial synergy potential”.
Talks between Renault and Nissan, and junior partner Mitsubishi, over the future of the alliance have recently resumed, but apart from warm words about the conviviality of the negotiations, nothing substantial has emerged.
An option reported by Automotive News Europe suggested that Renault could transfer enough shares it holds in Nissan to a trust so that the two companies own 15% of each other.
The talks are continuing.