Luca de Mio, CEO of Renault. (Photo credit: Renault – Olivier Martin-Gambier)
Renault is one of the leaders in the automotive industry in the world. It has achieved a turnover of 46 billion euros in 2021 It is a French company actively involved in the global automotive market It owns brands like Dacia, Renault, Lada, RCI Banque … 43% owned by Renault Nissan. Renault’s main shareholders are France’s 15% and Nissan’s 15%.
Technical Sense: Favorable
Renault has had a 1.27% annual performance in the stock market since 2008, compared to 6.52% for the Euro Stoxx 50. We note that prices are at historic lows in 2008, 2020 and 2022.
We consider that Renault’s price is testing a particularly important support from a technical point of view, with a strong discount compared to the internal price of around 20/25.
Sources: Bloomberg LLP and Everest Quantum Research. Bloomberg LLP is not responsible for this analysis.
In addition, the recent decline seems to us to be excessive on a comparable three-year basis with the Stalantis and Volkswagen.
Sources: Bloomberg LLP and Everest Quantum Research. Bloomberg is not responsible for this analysis.
Fundamental Analysis: Optimal
Renault’s recent negative performance in the stock market forces us to ask ourselves: Is Renault at risk of bankruptcy? We did a quick analysis of Renault with this question in mind.
Renault has 22 billion euros in cash. S&P rating is BBB-, investment grade, stable outlook. Renault’s debt ratio is 140%, which is quite high. Renault’s net debt is 39 billion euros. When lease obligations are not included in the loan because they are secured by receivables, the net debt falls to -5 billion euros.
While free cash flow was positive for 2021, Renault management expects some positive free cash flow for 2022.
Selling Russian business could bring some cash. If necessary, Renault can also sell Nissan shares. Renault owns 43% of Nissan. (Nissan’s capital is 15 billion euros and its book value is 32 billion euros.)
Moreover, in a similar situation with Peugeot a few years ago, the French state helped reorganize Puugeot. It is highly likely that the state will take similar action against Renault if necessary, especially since the state has realized a significant capital gain with Peugeot.
This indicates a very low risk of bankruptcy for Renault, even in the face of adverse market conditions in the automotive industry for the next few years.
We are now going to quickly estimate Renault’s underlying value first from a balance sheet perspective then from a cash-flow perspective.
The net worth of the book is 28 billion euros. The value of real net assets is only 21 billion euros compared to the market capitalization of only 7.6 billion euros, which is about 64% discount!
From our point of view, in this low resource valuation, some competitors may be interested in acquiring RNO at favorable terms by gaining access to Renault’s brand, distribution, production and financing infrastructure and R&D capabilities.
According to Renault’s annual calculations, the average free cash flow in the last 15 years was +1.4 billion euros. With a current capital of 7.6 billion euros, the CAP / FCF or P / FCF ratio per share = 5.4 which is very low.
Discounted future cash flows with net book value indicate a higher underlying price than the current share price. This price therefore seems very low to us.
AI GARP Sentiment: Optimal
Many stocks may remain devalued for a longer period of time than their intrinsic value (the famous “value trap”). Artificial intelligence makes it possible to pre-select a portfolio of particularly interesting stocks for study in a specific market context, through top-down scoring.
Thus, our “sense of artificial intelligence” indicator is currently higher for Renault. This indicator indicates that not only is Renault’s stock attractive in terms of valuation, but that stocks deserve to be on the “radar screen” for viewing.
Source: Evariste Quant Research
So we are buying Renault compared to the Eurostox 50 index. This way we can buy Renault shares by hedging the market risk by buying Eurostocks 50 Bear ETFs (like Lexor BSX Bear Eurostocks 50 ETFs) to neutralize the market risk.
This action research method
We value a stock in three dimensions through a “top down” filtering process supported by a “bottom up” fundamental analysis. This is the size
1. The definition of a GARP (real value increase) is the investment universe
2. Monthly “top down” artificial intelligence scoring
3. Basic “bottom up” validity.
1. Our GARP universe is based on the identification of an investment universe of long-term growth equities through quantitative filters by selecting stocks in investable universes (French equities subject to liquidity constraints).
2. Artificial Intelligence Scoring On a monthly basis, in this universe of 100 multi-cap stocks, identifies about 30 long-term growth stocks that are the most attractive in terms of valuation. The goal is to identify value-added stocks, which means that stocks are more attractive than their long-term value.
3. Finally, the final fundamental analysis makes it possible to verify the whole process above by focusing on human research efforts, not on the machine in pre-selected stocks through a pile of filters.
Evariste Quant Research is an independent financial analysis and research organization based on artificial intelligence solutions applied in asset management. Christian Lingman is an associate professor of finance and strategy at Claremont Ferrand Business School.
This financial analysis is not investment advice. Evariste Quant Research / Christian Lingemann and their clients may hold the security mentioned in this analysis.