NSANF - Nissan: The Story Continued

Summary

• Renault reduces stake in Nissan to 15% and redraws its 20-year alliance.
• On the other side, Nissan will invest in Renault's future electric division called Ampere.
• Supportive positive news for Nissan. Buy target at Yen 600 per share.

Here at the Lab, we closely followed Nissan's (NSANF) (NSANY)and Renault's (RNSDF) (RNLSY) latest development. In a specific publication called: Likely Change In The Shareholder's Structure , we emphasized how the two carmakers were recalibrating their internal alliance, reporting that Nissan would have stood up. In detail, we reported that

Nissan has asked several times to renegotiate the agreement terms and has always received a refusal from Renault. However, De Meo appears more open than his predecessors toward an alliance revision.. negotiations could last for a month and would include the option of a Renault drop in the shareholding from an equity share of 43% to 15%. The Japanese partner is considering investing in the future electric vehicle division of the French carmaker.

This is exactly what happened. Looking at the latest press release , Nissan announced a new chapter for their partnership. Twenty years after Nissan's rescue, the alliance between the Japanese company and Renault is changing face. As previously stated, the French group will reduce its equity stake in the Japanese partner to 15% from 43.4%. In turn, Nissan will invest in Renault's future electric division called Ampere, with the aim of becoming a " strategic shareholder " and effectively rebalancing the balance of power between the two automotive giants. The alliance's operating board will maintain its coordinating role after the deal is finalized, subject to the approval of Groupe Renault and Nissan's boards of directors. According to rumors, this decision was reached after months of " constructive " discussions between the two boards to " strengthen the bonds of the alliance and maximize the creation of value ", as stated in Nissan's note.

Since 1999, Nissan and Renault's balance of power was left unchanged. With the new agreement, Renault will now transfer 28.4% of Nissan's shares into a French trust, losing the stake voting rights but continuing to benefit from the economic rights - the dividends and proceeds from the sale of the shares - until the shares are sold. Renault itself will give instructions to the trust to sell the shares if it deems it convenient, but no obligation or deadline for the sale has been envisaged. Furthermore, according to the new agreement, the two manufacturers will maintain a cross-shareholding of 15% with a lock-up obligation and a standstill obligation. Both will be able to exercise voting rights up to a maximum of 15%.

The Franco-Japanese agreement then envisages Nissan's investment in Ampère, the company that will take care of Renault's electric and digital transition and which, in Luca de Meo's new strategic plan, is destined to be listed on the stock exchange as early as the second half of this year. The partnership will also be strengthened thanks to " high added value " projects. These agreements in Latin America, India, and Europe will range from markets to vehicles to new technologies.

Conclusion and Valuation

In 2022, our internal team initiated Nissan with an analysis called: Show Me The Story , emphasizing how the Japanese company would have shown to the investor community some meat. Finally, the company renegotiated its Alliance, agreed to sell its Russian operations, increased its forward guidance on turnover (to ¥10.9 trillion from ¥10.0 trillion) and its EBIT profit (to ¥360.0 billion from ¥250.0 billion) as well as partially restart its dividend per share. In addition, we also published a supportive analysis of how FX could Support Nissan Sales Exports . This continues to be the case and a key supportive catalyst in Mare Evidence Lab's investment thesis. According to the latest company production report released last week, Nissan's export increased by 3.5% on a yearly basis (Fig 1). FCF is back in positive territory and thanks to the positive latest news, we decided to leave unchanged our valuation which is supported by an achievable return on equity at 7% for the 2023 forecast. We derive a price target of 600 yen versus the current 472 yen per share.

(Fig 1)

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