E Is Renault A Value Bonanza?

Looking at current dividend yield, French manufacturer is an attractive option for potential investors providing a yield of little under 6%, even when proposed amount of €3.55 per share is in line with the previous year (subject to approval on the annual meeting). Here it must be stressed to American investors, that European companies usually pay dividends in one installment. In the case of Renault, it is May. The payout ratio is on high side in comparison to its peers, reaching 32.5%. However, if we consider recent headwinds as one-off events, then we shall sleep well at night knowing that our dividends are secure. Additionally, during Question and Answers session Renault representative hinted that dividends might be increased in not so distant future due to improvements in Renault Finance’s balance sheet needed to meet European Central Bank requirements. Therefore, Renault's financial segment shall be in the position to contribute to dividends in the future, however exact figures were not declared.

Conclusions

In my investment style, I like to attribute a small premium to the price for a moat. Renault has one - it is cost leadership. While such moat usually does not provide opportunities to reap abnormal profits, it is a moat nevertheless, thus I am adding 5% discount to the valuation price.

Combining it with estimation of undervaluation equal to circa 10%, we end up with having Renault undervalued by 15% in comparison to its peers. For me, such small difference does not trigger "buy" button on my keyboard since as a value investor I am looking for bigger discounts to open position or add some more shares to current holdings.

Concluding, for now, Renault is a hold for current shareholders, and new investors shall wait until the financial update after second quarter, where Renault financials shall reach the inflection point and provide the best risk/benefit ratio.

 

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The author is long Renault and has no plans to add/sell its holdings.

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Dick Kaplan 2 years ago Member's comment

Nice, I'm bullish on Renault. $RNSDF