French Intervention At Renault Could Have Investor Bright Side.
“He (Ghosn) is not as angry as all that”
While Renault Nissan CEO Carlos Ghosn grinds his teeth about French government bullying, some investors say the bright side could include finally unlocking the value of Nissan for Renault shareholders.
The French socialist government, using the so-called Florange law, bought shares on the market to temporarily raise its stake to 20 per cent from 15 percent to block an annual meeting resolution that would have curbed its power. This law allows long-term shareholders to double their voting power if shares are held for more than two years. Previously, companies had to opt in to this power. The Florange law makes it automatic.
The government planned to sell the shares again after the annual meeting.
This ignited the ire of the Financial Times’ Lex column.
“The Florange law, …….. , far from rewarding investor loyalty it comes across as protectionism, and can entrench the grip of dominant shareholders at the expense of minority investors,” Lex said.
Ghosn was said to be angry about this, although French economy minister Emmanuel Macron disagreed.
“He is not as angry as all that,” Reuters quoted Macron as saying.
Barclays Equity Research analyst Kristina Church though wonders what the fuss is all about, saying it might provide the positive catalyst for a change in the structure of the Renault-Nissan Alliance. Investors have for years wondered how the greater value of Nissan could be unlocked for Renault shareholders.
Renault has a 43.4 per cent stake in Nissan. Nissan owns 15 per cent in Renault which has no voting rights.
“While it looks likely that the French state will have enough voting power to ensure the law allowing double-voting rights gets enacted at Renault, we believe this may provide a trigger for Renault and Nissan management to review the current structure of their cross-shareholdings,” Church said.
“The conclusion may involve an increase in voting power for Nissan or indeed some form of fuller cooperation between the two businesses. We currently assign a 20 per cent conglomerate discount to Renault in our Sum of the Parts valuation but could see this being unlocked were there any future change in ownership structure,” Church said.
Church joined a string of analysts who see great profit potential at Renault, spurred by the prospect of an enhanced model line-up.
In 2016-2017, Renault will reap the benefit of sharing a Nissan platform for its renewal of mid-to large cars, these analysts say. This could cut large car losses by around €400 million a year. The new Espace is out, the new Renault Kadjar, similar to the Nissan Qashqai, arrives soon, the new Laguna late this year and the new Megane early in 2016.
“While we continue to expect tough markets in Russia and Latin America for the remainder of 2015, we see no reason not expect the strong performance of Renault in the first quarter not to continue,” Church said.
Morgan Stanley analyst Harald Hendrikse isn’t so sure.
Hendrikse points out the weakness of Dacia sales as a big negative for Renault.
“Given Dacia’s higher EBIT margins relative to group average this is a key concern for our 2015 (profit before interest and tax) forecasts. Falling Dacia sales and the declining group growth rate clearly reflects the declining sales volume performance of Renault due to its outsize exposure to falling (emerging markets). Although we understand weakness in these markets is not new news, we remain confused as to why investors continue to overlook this risk to Renault 2015 forecasts and sustainable earnings, even prior to AvtoVaz consolidation in 2016,” he said.