(News Bulletin 247) – The diamond manufacturer has decided not to list its subsidiary dedicated to electrical technologies and embedded software on the stock market. In the unanimous opinion of analysts, this is not bad news for shareholders.

Luca de Meo chose pragmatism rather than blindly pursuing an idea that hardly enchanted the market.

The general director of Renault had put his all into defending the IPO of Ampere, a subsidiary of the diamond group dedicated to electric vehicles and on-board software. Renault intended to retain the majority of this subsidiary, while opening the capital to minorities, including Nissan (up to 600 million euros) Mitsubishi (up to 200 million euros) and the American group Qualcomm.

But the car manufacturer had to resign itself on Monday evening to announcing to the market that it was abandoning this listing project launched in 2022 and supposed to crystallize the value of Renault’s jewel, its flagship in the electric sector. “It would not have been totally responsible to be blind and not look to the side” to realize that the operation would not have kept its promises, Luca de Meo explained to journalists and analysts.

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The shooting window had passed

Two reasons were given by the general manager to explain this renunciation: unsatisfactory market conditions and the fact that Renault now generates much more cash than two years ago, when Renault launched the project. On the second point, we can object that Renault was probably already aware of this more robust trajectory a few months ago, when it organized an investor day dedicated to Ampere in November.

It is difficult, however, to prove Luca de Meo wrong about market conditions. Since Renault launched the IPO of Ampere, investors’ appetite for purely electric players has subsided. And the market is increasingly doubting the prospects and especially the profitability of this technology, given the increased competition from Chinese players. The fall of Tesla on the stock market (-23% since the start of the year) attests at least in part to this deterioration of the market.

As a result, the valuation that Renault wanted for Ampere, that is to say between 8 billion and 10 billion euros for 100% of the capital, was probably out of reach, and several analysts had expressed doubts about this range.

“The window of opportunity for this operation was two years ago, where Ampere had become a ‘show me story’ (a stock market story which requires proof of credibility, Editor’s note)”, estimates a Parisian financial intermediary for whom ” Luca de Meo was right not to complete the project.

Less dilution

To tell the truth, the market hardly misses Ampere. Following the announcement of the abandonment of the listing of this subsidiary, Renault shares jumped by almost 5% in the first exchanges before, of course, coming back to earth. The stock still gained another 0.2% around 10:40 a.m. while the Stoxx Europe 600 Automobiles & Parts sector index was falling at the same time.

“Investors did not really understand the rationale behind this IPO. Renault’s strategy and positioning will not be affected, so it is an overall positive announcement even if this operation included its share of positive elements such as the additional fundraising. The IPO (initial public offering, Editor’s note) of Ampère was also seen as a potential catalyst for the group with a pure electric player and a PE multiple (share price compared to expected profits, Editor’s note) higher”, develops Adrien Basey, analyst at the independent research firm AlphaValue.

“This renunciation is logical, the market valuations are bad. As much as investors like Ampere strictly speaking, they did not like the IPO (the initial public offering),” notes an analyst based in London. This expert underlines that the absence of an IPO avoids a dilution of Renault shareholders on the valuation of electrical activities. “From the moment you make this IPO, you create minority interests and therefore dilute Renault’s key shareholders in relation to the future value of Ampere,” he adds.

This dilution will therefore not occur or at a much lower level. Financial director Thiery Piéton explained that the investment agreements in Ampere from Nissan and Mitsubishi included a clause providing for the possibility that Ampere would not be listed. Which is not the case with the American Qualcomm. But in any case Renault will discuss with each of these three potential investors, explained the manager.

“We suspect that the stakes (of Nissan and Mitsubishi) are no longer necessarily set in stone,” writes Stifel.

“Potential dilution by external partners has been the main obstacle for (the long-term stock market history of) Renault, and the increasing probability that Renault retains 100%” of Ampere should be well received by investors, continues Stifel which considers that the abandonment of the IPO represents “a relief”.

“One less distraction” for management

“Other problems arose such as the crystallization of value. We saw with the IPO of Porsche by Volkswagen that the transfer of value took place from the parent company to the subsidiary and therefore the Renault share would probably have suffered of this operation”, adds the Parisian financial intermediary previously cited.

“The other problem is the structure: Renault is an automobile group which only generates 50 billion in revenue and wants to divide itself into five divisions with, in addition, a listed one. That was a lot anyway, that’s okay with a company like Volkswagen but Renault…”, he adds.

Stifel also mentions “one less distraction” for Renault management, with the abandonment of this listing, which will allow the company to focus more on operational matters.

“While the cancellation of the IPO sends a mixed signal, we do not believe it will significantly change investors’ views on the equity story (the story a company tells to the market to please it). , Editor’s note) of Renault”, UBS decides for its part.

Ultimately, the abandonment of Ampere shows how much the market and observers can change their minds in two years. What Luca de Meo did not fail to point out, evoking “childishness”.

“Two years ago everyone was telling us that if we didn’t go 100% electric we would become a bunch of zombies in 10 years and now everyone is telling us that we shouldn’t go electric because of profitability, other stuff, etc.'”, he tackled