Citigroup tells investors to sell Renault shares

Renault SA, France’s second-largest carmaker, fell the most in two weeks in Paris trading after Citigroup recommended that investors sell the stock, citing Europe’s auto-sales slump and conditions attached to state aid. Renault declined 65 cents, or 3.2 percent, to 19.31 euros, the biggest drop since Dec. 19, valuing the carmaker at 5.5 billion euros ($7.47 billion). Citigroup analyst John Lawson downgraded the stock to “sell" from “hold" after revising estimates to reflect a projected 15 percent contraction of Europe’s car market this year.

While Boulogne-Billancourt, France-based Renault has been quick to benefit from state aid, “government cash might also come with strings attached, limiting restructuring," the London-based analyst said in a report today.

The French government has announced more than 1.3 billion euros in financing and direct aid for carmakers and parts suppliers, hit by the worst sales slump in almost a decade. In return, Renault Chief Executive Officer Carlos Ghosn has pledged not to close any French plants.

Citigroup also told clients to buy a “put spread" on Renault that would be most profitable if the shares drop to 12 euros. Investors should buy one put option expiring in June at a strike price of 19 euros, while simultaneously selling two puts expiring in the same month at a strike of 12 euros, Citigroup said.