Why Niko Reckons Renault Is Overdue For A Rally

Why Niko Reckons Renault Is Overdue For A Rally

over 2 years ago2 mins

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Summary

  • Renault’s Zoe model is already Europe’s top-selling electric vehicle, ahead of Tesla.
  • Apart from its automaking activities, the company controls a large financial arm that may not be fully reflected in its share price.

What’s the pitch?

A long-term investment in Renault (ticker: RNO) with a target of 45 euros, 35% above the current price. 

What does Renault do?

This French automotive giant is leading the electric vehicle (EV) sales in Europe. It also owns 43% of Nissan and has an internal bank, RCI Banque, worth approximately $7.5 billion.

What’s your three-point investment thesis?

  • Renault wholly owns RCI Banque, which provides financing and related services to the customers and distributors of the Renault-Nissan Alliance. RCI’s value accounts for somewhere between 50% and 80% of Renault’s entire market capitalization.
  • CEO Luca de Meo is leading a turnaround plan called Renaulution with an aggressive strategy to increase EV sales. Over the next two to three years, Renault will introduce bigger EV models that generally have better margins. At the same time, Renault has launched a subsidiary, Elexent, that is entering the EV charging market in Europe.
  • The Renault Zoe replaced Tesla’s Model 3 as the best-selling EV in Europe in 2020, with 99,261 units sold (growth of 114%). Expansion of sales of EVs into other markets such as Brazil, the Middle East & North Africa, and India will increase over the next two years.

What are the key events you’re watching?

  • The ongoing French probe into emissions fraud.
  • Renault’s financial results for the first half of 2021, to be published on July 30th.

What’s the upside potential if your thesis is correct?

The European Central Bank has prohibited distribution of capital to shareholders due to COVID-19 uncertainty and RCI intends to pay out approximately $1.1 billion when allowed. Renault is predicting the sales of electric and hybrid vehicles will double in 2021, reaching 350,000 vehicles. The expected annual growth rate through 2025 is close to 10%. 

What are the risks you’ve spotted, and how do you plan to mitigate them?

Renault is currently suffering from high costs and a lot hinges on the company’s ability to implement the turnaround plan, as well as lack of presence in China and the US.

You can mitigate this by investing in a car manufacturer with good value, strong presence, and investment in EV products in the Chinese and US markets.

Has Niko convinced you? Send us your thoughts on his Renault pitch here.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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