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Renault Shares Advance After News, Later Denied, On Merger

Renault Shares Advance After News, Later Denied, On Merger.

But Would Full Merger With Nissan Unlock Big Value?

Renault shares zoomed after a Reuters report France might sell its 15 per cent stake to Nissan, but fell back a day later when the companies and the French government denied there were any such plans.

The performance of the share price shows investors only half believe the denial. The shares spurted from €90 to €100 when the news broke, but slipped back to about €95 after the denial, and stayed there for a week.

Renault owns 43.4 per cent of Nissan including voting rights while Nissan owns 15 per cent of Renault with no voting rights. Nissan also owns 34 per cent of Mitsubishi. Investors have long believed that a full merger of Renault and Nissan would unlock much mythical value.

Not so, says investment researcher Jefferies.

“Our view remains that a merger is no guarantee of a rerating as earnings on both sides are flat-lining and the historically large gap in multiples has closed. The near term winner might be the French state if it could secure a disposal of its stake at 10-year highs,” said Jefferies analyst Philippe Houchois.

Houchois said any rerating of the shares depends on both companies delivering returns consistent with claimed synergies in excess of its competitors, which he doesn’t believe is happening.

“Neither the gap between Renault and Nissan nor the industry range suggest that the Alliance is undervalued,” he said.

But investment researcher Evercore ISI remains a believer.

“While the reports have been dubbed “speculation” by The Alliance, there is very seldom smoke without fire, and we see smoke billowing. We may be nearing an actual turning point, whereby the long-term discount applied to Renault shares is finally lifted,” said Evercore ISI analyst Arndt Ellinghorst.

Ellinghorst said he sees no reason for the government to retain a stake in Renault. The French government stake, according to CEO Carlos Ghosn, inhibits Nissan investment

“Even beyond the potential upside offered by structural changes at Renault, we remain buyers of the stock on a strong operational story,” Ellinghorst said.

Last month Renault excited investors with record profits, news CEO Ghosn will stay on for 4 more years, and his pledge that the alliance with Nissan is irreversible.

Renault’s operating profit advanced 17.4 per cent to a record €3.85 billion last year.


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