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Weakness of French Stocks Triggers Investor Interest

But Fear Of Political Interference Undermines Renault, Peugeot

Peugeot-Citroen and Renault of France continue to lag Volkswagen as investor favourites, and the looming French presidential election next May is thought by some to be curbing needed restructuring.

Le Monde newspaper leaked a story earlier this month that Peugeot was planning to shut the Aulnay-sous-Bois plant in Paris and Sevel Nord in northern France, but the denial by PSA Peugeot CEO Philippe Varin was thought by some observers to have been induced by pressure from President Sarkozy anxious to avoid as much negative news as possible before next year’s election. In May, Renault CEO Carlos Ghosn startled investors who remember failures such as the Avantime and Vel Satis when he pledged to build more premium cars in France. This came just before Renault appointed a new chief operating officer. This required the approval of the French state, which still holds a 15 per cent stake the company.

After the economic slump in 2008 France lent Peugeot-Citroen and Renault about €3 billion each to help them through the crisis. This was believed to contain the stricture that the government wouldn’t look kindly on decisions to shut down production in high cost France.

“The market’s low valuation of the French car industry is clearly related to the government’s impact,” Credit Suisse analyst Arndt Ellinghorst told Automotive News.

But because investors have been turning away from the likes of Peugeot-Citroen and Renault, the resulting fall in their stock market valuations brings up fresh buying opportunities for investors, according to UBS Investment Research. Renault watchers have long been frustrated by a feeling that the alliance with Nissan needs to be fundamentally changed, while receiving no evidence at all that this might actually happen.

“We believe the market is pricing the status quo at Renault, i.e. continuation of zero growth, and no change to the capital structure of the Nissan Alliance. Growth should benefit from the renewal of the Logan low cost family car, market share stabilisation at Renault core and strategic exposure to Russia and electric vehicles. We believe any change to the current Alliance (merger of partial divestment) has positive implications for Renault shares,” said UBS auto analyst Philippe Houchois.

Under-rated Peugeot
Houchois also believes markets have under-rated Peugeot’s performance, and he reckons investors should buy its and Renault’s shares. Houchois still recommends investors buy VW shares, despite their recent strong performance.

Bernstein Research analyst Max Warburton says Renault’s share prices remains farcically low.

“But it’s clear we need a catalyst such as a change in corporate structure (at Nissan) ruled out by Ghosn, a change of management (apparently not imminent) or higher core earnings,” Warburton said.


Neil Winton – July 1, 2011   

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