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About the company
Groupe Renault is a French multinational automobile manufacturer established in 1899. The company produces a range of cars and vans, and in the past has manufactured trucks, tractors, tanks, buses/coaches and autorail vehicles.
Investment Thesis
Shares in Renault were down 6% on Friday post results. We see this sell off as being excessive, creating a buying opportunity. In fact, we just doubled our position in Renault in the equity fund to average down.
The shares are down because Renault announced that it will face some pricing pressure in certain markets. Despite this, we expect EBIT margin to improve in H217 for the following reasons:
1) We expect Renault to deliver volume growth from new car sales
2) Lower negative from foreign exchange
3) Strong contribution from cost savings
Taking the reported earnings for the first six months and adding to it the last 6 months EPS (which is much lower than that forecasted for H217), the shares are trading on a trailing earnings yield of 20% which is too much in our view and should adjust in the short term, resulting in a rise in price.
Rationale for our Overweight Recommendation
We are overweight on Renault with a price target of €100 per share for the following reasons:
Outlook
Renault should be a satellite in a portfolio. Margins, cashflow and profitability are expected to continue increasing in the coming years. Renault should be added to a well-diversified portfolio.
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