Car emissions campaigners turn sights on Renault
Spokesperson: There have been no raids on our offices related to the Renault issues
JPMorgan Chase prelim Q4 $1.32 vs $1.30 Capital IQ Consensus Estimate; revs $23.75 bln vs $22.34 bln Capital IQ Consensus Estimate
(Corrects role of ICCT co-founder in 12th paragraph)
* DUH says excess emissions levels detected in 5 separate tests
* Renault contests the DUH body's findings
* DUH calls for reform of European approval system
By Andreas Cremer and Laurence Frost
BERLIN/LONDON, Nov 24 Renault's flagship Espace minivan released toxic diesel emissions 25 times over legal limits in a Swiss study, despite complying with EU tests carried out at unrealistically low engine temperatures, a German environmental group said on Tuesday.
The tests commissioned by the DUH group, which have not been independently verified, follows Volkswagen's admission that it used illegal "defeat devices" to cheat diesel emission regulations.
In a statement, Renault said it contested the findings of the DUH lobby group.
Environmental and consumer groups are leading calls for improved European Union tests to bring soaring car emissions of nitrogen oxides (NOx) and carbon dioxide into line with legal limits.
The DUH, which had earlier singled out General Motors' Opel brand in tests which suggested NOx emissions on the road were higher than those measured in official testing, has turned its fire on France's Renault in a report commissioned from the University of Applied Sciences in Bern.
When run with a warm or hot engine, a 1.6-litre Espace of the latest Euro 6 diesel generation emitted up to 2.06 grammes of NOx per kilometre, the campaign group said, more than 25 times the EU limit. The vehicle met the statutory 80 milligramme cap only with a cold engine after "specific pre-conditioning".
GM last month rejected similar DUH findings on its Opel Zafira model, after running its own tests monitored by Germany's TUV certification body.
The VW diesel scandal has drawn attention to a wider pattern of legal test manipulation that stops short of outright cheating. The EU rules themselves are now acknowledged to be inadequate even by carmakers such as PSA Peugeot Citroen .
Carmakers routinely strip out standard equipment to reduce test vehicles' mass, tape up door joints and fit bald tyres that would be illegal on the road.
Tuesday's DUH findings may shed light on the real-world impact of optimising engines to pass tests only when cold - which would be another tactic allowed by the current regime.
"It's unbelievable that so-called modern diesel vehicles that damage the air we breathe in this way are on the road today," campaigner Axel Friedrich said in the DUH statement.
Friedrich is a co-founder and council member of the Washington-based International Council on Clean Transportation (ICCT), which commissioned the original investigation that led eventually to the exposure of VW's test-rigging.
Europe needs a "comprehensive reorganisation of the system in which mandatory regular controls on the street are integrated", he said.
EU moves to phase in real-world emissions measurements were watered down in committee last month under sustained German-led lobbying.
Volkswagen admitted in September to rigging U.S. diesel emissions tests, unleashing a scandal that forced out longstanding CEO Martin Winterkorn and may cost the group as much as 40 billion euros ($43 billion) in recall costs, fines and compensation, some analysts estimate.
-17%
Near-term fundamentals are deteriorating
Latest datapoints suggest a deceleration in oil demand, driven by now tough year-on-year comps and weakening macro in emerging markets. With inventories of both crude and products continuing to rise, storage options are becoming limited, particularly in the European diesel market. Breaching diesel storage would force refineries to lower runs/shut down, temporarily reducing crude oil demand, and potentially forcing crude to be stored offshore, requiring a further steepening in the forward curve. Whilst not there yet, we are approaching levels that are likely to force production temporarily offline, in our view, bringing us closer to a bottom in oil prices.
Although a bottom is in sight, rebalancing may not be immediate
Unless production is forced offline for operational (running out of storage) or financial reasons (cash costs), risks to supply remain skewed towards continued resiliency. Our Top 420 analysis suggests a strong year of largely derisked production growth from the industry’s giant fields, shale continues to become more productive, OPEC supply should continue to rise and, whilst we expect declines to accelerate in mature regions, FX and lower costs continue to support production. We remain constructive on demand, seeing 1.3mbpd of growth in 2016, although we see downside risk from milder weather in the OECD and weaker trends from commodity producing regions such as Africa & the Middle East.
Whilst continued deflation poses downside risk to the cost curve
FX devaluation and positive surprises in productivity gains and service cost deflation are not only keeping production more robust than expected, but also flattening and lowering our Top Projects cost curve, suggesting
downside risk to our $65/bl brent forecasts in 2017/18 and potentially putting a cap on any oil price recovery.
Near-term oil, gas & EU refining all challenging: Sell Statoil & OMV
Although the back end of the curve will likely have to rise, generally a positive signal for oily equities, near-term risks remain skewed to the downside. European integrateds, already pricing in $55-60/bl brent and in the near term exposed to low oil prices, low LNG/European gas prices and weak European refining margins, appear particularly negatively impacted. We highlight Statoil (Conviction List) and OMV as key Sell ideas.
Moving to an Overweight rating and €42 PT on supportive geographic exposure
and a Jan-17 price target of €42 (14% potential upside) from Not Rated
(Neutral rating and Oct-15 €37 price target prior to restriction). We think
SGO’s geographic exposure underpins our earnings forecasts in 2016,
following a wave of downgrades until recently, while we believe the group’s
strong balance sheet (1.2x 2016E net debt/EBITDA) and attractive 5/6%
2016/17E FCF yield justify re-rating to a share price currently trading on an
unwarranted 11% historically high discount to the sector on 6.9x/6.4x
2016/2017E EV/EBITDA.
* Geographic exposure supportive. We believe SGO’s geographic exposure
will support earnings growth in 2016 with c. 80% of revenues generated
from developed markets, and just 20% from emerging markets. We see an
uplift potential from the French market (25% of revenues) in 2016, but
conservatively forecast stable trends. We also believe growth in the US
(North America is the second largest market for SGO with 14% of 9m 2015
revenues) will remain attractive, supported by continued good momentum
in construction, while we note that comps for SGO’s exposure to the
industrials segment are undemanding given the strong decline in the
proppant market observed in 2015 (down c. 70%). The other key markets
for SGO are Scandinavia (12%), the UK (12%) and Germany (9%), all of
which we think should grow in 2016.
* Strong Balance Sheet and attractive FCF. Leverage has fallen from 1.9x
ND/EBITDA in 2012 to 1.7x in 2014. Taking account of the disposal of
Verallia, we expect ND/EBITDA to decrease to 1.2x in 2015E and 0.8x in
2017E (excl. Sika). We project FCF generation of c. €1.2bn p.a. in 2015-
2017 (c. 6% FCF yield), which should boost DPS and buybacks further.
* Sika negatives already discounted. We think the market has already
negatively discounted for this transaction while a positive decision from the
Zug court would mean SGO gets control of Sika, a good outcome in our
view. It also leaves little room for further surprises on the M&A front given
the group has already spent most of its acquisition target of €4bn.