Renault Shares Slump on Poor Prospects for Partner Nissan

(Bloomberg) -- Renault SA has long relied on Japanese partner Nissan Motor Co. to prop up its earnings. That pillar is now crumbling.

The French carmaker’s share price fell to a four-year low after Nissan cut its dividend for the first time in a decade and predicted annual operating profit will fall below even the most pessimistic analyst’s estimate. Nissan has hit “rock bottom,” its chief executive officer said.

The knock-on effect of Renault owning a 43% stake in the Japanese company will push its earnings down by about a fifth in 2019, Evercore analysts said Wednesday. Over the next three years, Nissan’s contribution will drop by about 2.2 billion euros ($2.5 billion), or 26%, it said.

In response, investors sent Renault shares down as much as 4.3% in Paris trading.

The Japanese carmaker is smarting from slumping U.S. sales and aging vehicle models. The dimmer prospects come at a time of heightened tension within the car-making alliance with Renault. In the aftermath of the arrest of their former chairman, Carlos Ghosn, the French company is pushing, and hitting up against strong resistance, for an outright merger with Nissan.

Now, Nissan’s fianancial troubles are adding to the mix. Its dividend cut will wipe 56 million euros off Renault’s first-quarter net income, the French company said Tuesday. This compares with a 478 million-euro contribution during the same period a year ago.

Stripping out the Nissan stake and another in Daimler AG, and net cash, Renault’s core is trading at a negative 1.2 billion euros, or 4 euros a share, according to Bloomberg Intelligence analyst Michael Dean. The stock was down 3.8% at 51.10 euros at 11:33 a.m. in Paris, giving a market value of 15.1 billion euros.

Nissan’s dividend has “been pivotal to Renault’s,” financing about 71% of its payouts over the past five years, according to a note from MainFirst analyst Pierre-Yves Quemener. The French company’s dividend “could be cut going forward as free cash flow generation has weakened.”

While Renault owns a stake in Nissan, the Japanese automaker is the bigger partner in their alliance and in turn owns 15% of the French carmaker, with no voting rights. They produce a combined 10.8 million cars each year, almost double Ford Motor Co.’s global deliveries. The alliance would be second in vehicle sales only to Germany’s Volkswagen AG, with Toyota Motor Corp. a close third.

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