(BFM Bourse) – The diamond group has recorded the largest increase in the CAC 40 since the start of the year, thanks to good results but also to its absence from the Chinese market. Several financial intermediaries believe that the brand has the means to progress.
For many years, Renault has evolved at aberrant valuation levels on the stock market, weighed down by a series of storms (Ghosn affair, health crisis, semiconductor shortage, failure of the merger with Fiat Chrysler, etc.). But also by lackluster results. The group, for example, issued a resounding warning on its accounts in the fall of 2019. At the time, its share price restated for cash, its stake in Nissan, and its financial services was zero or even negative.
The turnaround of the group under the leadership of Luca de Meo, with the emphasis on cost control and value rather than volumes, has changed the situation.
Renault, of course, still trades at less generous multiples than Volkswagen and Stellantis, that is to say 3.7 times the expected profits in 2024, compared to 4.6 for the German and 4.5 for the group. Franco-Italian-American.
But the stock has clearly regained momentum this year. Since January 1, Renault has gained 34.6%, which quite simply constitutes the strongest progression in the CAC 40. The diamond group passed Safran on Thursday, a session where the car manufacturer gained 3.2%.
“The market is perhaps saying that Stellantis has made good progress for several quarters (+50% over one year, Editor’s note) and is therefore looking for more “value” stocks, with more potential, like Renault”, estimates a financial intermediary based in London.
HSBC notes, for its part, that Renault has the best performance of the European car manufacturers in its coverage. The Sino-British bank believes that it is difficult to isolate a single reason explaining the rise in the stock but rather sees a combination of factors.
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The establishment evokes pell-mell the absence of the group in China where the outlook is gloomy, the rather lenient price and volume environment in Europe or even the greater market confidence in the group’s cash generation. Renault had also surprised investors by publishing a cash flow significantly higher than expectations for 2023.
Two other points are mentioned by HSBC: the cancellation of the planned IPO of Ampere (the subsidiary dedicated to electricity and software) which simplified the structure of the group, and the confidence of management in the capacity of Ampere to establish collaborations with other manufacturers.
As with any stock market rally, the question of Renault’s stock market potential arises. And, on this point, the latest analyst opinions are positive.
Berenberg reiterated its buying opinion last week and raised its price target to 52 euros compared to 47 euros previously (compared to a current price of 49.7 euros).
The German bank appreciates the defensive qualities offered by Renault on its margins. The group’s profitability should, in fact, be supported this year by a wave of launches of new, more profitable vehicles. No less than ten are planned for 2024, including the Scenic E-Tech, the Rafale, the Renault 5, and even a new Dacia Duster.
Certainly, the electric vehicle market is experiencing a slowdown in Europe. But Renault can do well on Thursday. “Although the market for electric motor vehicles remains difficult in the short term, we believe that Renault is relatively well placed,” says Berenberg. “Its Scenic EV is well positioned, less expensive than its main competitors” and the R5, which is due to be launched later in the year, “has received a robust reception from the press and social networks”, continues the bank German.
A grade soon to be raised?
In addition, Berenberg sees a catalyst: the raising of the group’s credit rating by the rating agencies. Currently the manufacturer is rated “Ba1” by Moody’s and “BB+” by S&P, the last notch in the scale of each agency before the non-speculative category (“investment grade”). The German bank believes that with better cash generation from the group and a higher cash position, Renault now meets the criteria to return to this non-speculative category. A rating upgrade should allow the group to get closer to its dividend distribution objectives to shareholders. The coupon of 1.85 euros per share proposed for the 2023 financial year represents a distribution rate of 17.5% while the company is targeting 35% in the medium term.
HSBC, for its part, raised its target even higher on Thursday, going from 47 euros to 57 euros. The Sino-British bank also appreciates the group’s desire to return more cash to its shareholders and makes the same observation as Berenberg on the potential increase in the company’s credit rating.
“Greater confidence in cash generation and return (to the shareholder, editor’s note) could result in a further improvement in stock market multiples” of Renault, she explains. HSBC expects Renault to regularly generate automotive cash flow of more than €2.5 billion per year. Which, according to her, the market has not integrated.
In the process, HSBC has put an end to a cliché surrounding the manufacturer, too easily perceived as a loser in the electrification and digitalization of the automobile, according to the bank. This is due to its limited volumes as well as its exposure to the European market (70% of its revenues) and Chinese competition.
Fewer parts per car
“The reality seems to be quite the contrary. Thanks to Ampere, Renault has built a largely European supplier base. This is important because logistics represents a considerable part of the costs, in particular for electric vehicles,” says the bank.
Furthermore, in terms of electric costs, “Renault seems to be doing quite well, on par with its peers, or even better,” she judges. HSBC underlines that the group has significantly reduced the development cycle of its vehicles, going from four to five years to three years for the latest models (Renault 5, electric Scenic) or even two years for the electric Twingo whose release is expected in 2026 These development times are comparable to those of Chinese manufacturers, says the establishment.
HSBC also appreciates the fact that the group has reduced the average number of parts per vehicle from around 2,400 to 1,100 for the Megane E-tech and 700 for the next generation of automobiles.
Julien Marion – ©2024 BFM Bourse
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