Key insights
- The analysis presents a contrarian view on Renault, highlighting its low valuation relative to its assets (cash, HORSE stake, F1 team, Nissan stake) despite industry headwinds and operational risks. While the author sees potential value, the weak European economy, competitive auto market, and disruption risks suggest a slightly negative influence on broader market sentiment, particularly for auto stocks.
Quick pitch for Renault - Please rip it apart
Ticks all the wrong boxes:
- Auto industry highly competitive with massive historical value destruction
- Seemingly no moats, high operating leverage (high fixed cost) and razor thin margins
- High operational and financial risk (guarentees, callbacks, leasing agreements, uncertain residual value)
- Weak european economy, weak consumer, extreme union pressure and no leadership
- Disruption risk from autonomous vehichles
- Supply chain disruption
- Covid hit, Russia market gone, China dumping
Conclusion: Dont waste another calorie and move on to more optimistic.
Lets ignore the urge to throw this in the bin and instead open the hood.
Simply explained the main operations can be divided into the auto production part (produce and sell cars) and the finance part (provide financing to its customers). So its a carmaker with a bank, like most of its peers. I will not bore you with the details of the history and business model, instead I will give you some numbers:
- Auto business has a net cash position of 7.4bn eur
- Book value of equity for the bank is 7.3bn eur
- Owns 45% of HORSE, which is worth 3.3bn eur based on 2024 transaction
- The company owns a F1 team for its racing brand (Alpine) (Forbes says 2.5bn eur for the F1 team)
- Owns a stake in Nissan with market value of 2.5bn eur
- Auto business with normalized EBIT of 3bn eur
- Major legacy real estate portfolio, new defence venture (drone production), major V2G (vehicle to grid) tech player, supercharging network, quite interesting refurbishment & recycling plants, Lada option (lost Lada in 2022 due to war, has option to get it back - 25-30% market share in Russia)
And what do you pay for this? Renault trades at a market cap of around 9bn eur.
Some personal reflections coming. My impression is that the company has a strong rooster of models today and in the pipeline, for what that is worth. France best of the worst in weak Europe. Less union pressure directly into governance and less pension liabilities than German peers. Support from the state. Growing in emerging markets. Europe waking up to protect its industry for strategical reasons? Recycling of cars and batteries a big strategic play. A lot of interesting tech-like ventures and hidden value from legacy assets. Upside from peace. High dividends, but no real buybacks yet.
Can someone please rip my pitch apart and save me from joining the club of investors loosing money on carmakers?