(News Bulletin 247) – The Swiss bank has lowered its recommendation on the car manufacturer to “sell”. UBS estimates that Renault is one of the groups most exposed to competition from Chinese players in Europe and sees risks on the future valuation of Ampere, which it only places at 3-4 billion euros.

Did Renault eat all its white bread on the stock market? The diamond manufacturer delighted the market at the end of June, when it significantly raised its financial objectives for 2023 following a thunderous first half, demonstrating the success of its recent launches, the Renault Austral in the lead.

But for UBS, the party may well be over. The Swiss bank lowered its advice on Friday on the group led by Luca de Meo, from “neutral” to “sell”, with a price target reduced to 31 euros against 42 euros previously.

This change in recommendation weighs on the Renault share (the advice to “sell” being relatively uncommon). The manufacturer’s title lost 4.7% on the Paris Stock Exchange around 11:10 a.m. and showed the strongest decline in the index.

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Financial performance that will deteriorate in 2024

UBS expects financial results to remain strong for the next few quarters, and does not even rule out a potential upside surprise. But the Swiss bank stresses that most of the group’s key indicators will no longer improve.

UBS estimates that Renault’s profitability will peak this year, with an automotive operating margin of 5.9% in 2023, which would then fall to 4.7% in 2024.

“Renault’s pricing (for simplicity’s sake, editor’s note) has improved by around 20% since 2020 and is now at the level of its sector comparables”, notes UBS, which considers that the contribution of price increases to results will therefore fade.

In addition, the establishment stresses that “mass market” car manufacturers such as Renault are most at risk of losing market share, due to increased competition from Chinese groups and their offensive in Europe, such as BYD, a specialist in electrified vehicles.

“With around 70% of sales in Europe and a European market share of 10%, Renault is one of the most exposed names here,” explains UBS.

The establishment notes that BYD and Tesla intend, between them, to increase their vehicle sales on the Old Continent by 2.5 million units (compared to a total market of currently 15 million cars). But the bank doubts that the market can expand sufficiently to cash in on such ambitions.

The light is dark for Ampere

Which should also put Ampere under pressure. As a reminder, this company will bring together the electric vehicle and on-board software activities of Renault, which intends to list this company on the stock market in the spring of 2024 so as to crystallize value.

A large part of UBS’s note is devoted to the future of Ampere, on which the Swiss bank perceives risks and deplores a lack of visibility.

UBS estimates that it will be difficult for Ampere to meet its medium-term objectives, namely sales of 1 million electric vehicles in 2031 (it retains 800,000 vehicles in 2030) and an operating margin around 10% in 2030.

As a result, Ampere’s IPO will not crystallize value, according to UBS.

“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,” points out the bank. In addition, “Ampere’s valuation is strongly focused on the 2025-30 horizon, for which we have too little visibility”, adds the establishment.

UBS values ​​Ampere at €3-4 billion in its base case, using different methodologies. Renault has never given a valuation target for its future subsidiary, but indiscretions from Reuters and Bloomberg mentioned a potential figure of around 10 billion euros. And previous analyst estimates were between 5 billion and 30 billion euros.

Moreover, still on the future IPO of Ampere, UBS considers that the structure of Renault after this operation “will become more and more difficult to read”. And the Swiss bank notes, by way of example, that the IPO of Porsche, at the end of 2022, showed “mixed” results, with little effect on the performance of the action of the parent company. Volkswagen.

In reality, the impact was even more negative, with some investors making an arbitrage by positioning themselves on Porsche while selling Volkswagen.