Honda and Nissan Start Merger Talks, Both Stocks Undervalued

We’re skeptical a combined company can defend against Tesla and Chinese EV manufacturers.

24 December, 2024 | 9:18AM
Facebook Twitter LinkedIn

Illustratie van procentteken met behulp van een potlood en donutgrafieken

Honda and Nissan Update

Honda 7267 and Nissan 7201 announced to finalize a business integration by June 2025 and set up a holding company through share transfer. Shares of the holding company will be listed in August 2026 while Honda and Nissan would delist. The integration will also include Nissan’s 24%-owned Mitsubishi Motors.

Why it matters: Nissan’s share price gained 25% in the past five days, recouping the loss after Nissan reported a quarterly loss and slashed operating profit guidance by 70% last month. We think the potential merger is primarily driven by the growing competition from electric vehicles, or EVs.

Honda also announced that it will buy back as much as JPY 1.1 trillion (£5 billion) of its own shares, equivalent to 24% of its total issued shares, between January and December 2025.

The bottom line: We keep our fair value estimates unchanged at JPY 2,000 for Honda and JPY 700 for Nissan. While we view both shares as undervalued, we are skeptical that the merged entity could easily defend competition from Tesla and Chinese EV manufacturers as both companies lack compelling EV models.

Honda sold 4.1 million light vehicles in fiscal 2024 and Nissan sold 3.4 million. The combined entity would create the world’s third-largest auto group after Toyota and Volkswagen. However, given the overlap of model portfolios, it may take longer than anticipated to fix the troubled business.

Between the lines: The automakers expect the new entity to achieve revenue exceeding JPY 30 trillion and operating profit of more than JPY 3 trillion by realizing synergies as the two companies standardize vehicle platforms, streamline costs, rationalize capacity, and co-invest in EV development.

With Renault being Nissan’s largest shareholder—it holds a 35.7% stake in Nissan—we believe a Honda-Nissan merger would be positive for Renault if the transaction could improve Nissan’s equity value and turn around the struggling business.


The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

About Author

 

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Modern Slavery Statement        Cookie Settings        Disclosures