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Renault Automotive May Slip Into The Red By Year’s End

Strong Third World Position Undermined By Currency Movements.

Renault, alone among non-German European mass car makers to keep in the black, could be reporting red numbers for the year as the life-saving contribution from the third world Dacia brand is stifled by foreign exchange turmoil.

Renault said its third quarter revenues fell 3.2 per cent to €8 billion compared with the same period of 2012 as sales to Iran were blocked by international sanctions and emerging market currencies weakened. Currencies like the Brazilian real, Argentine peso, Indian rupee and Russian ruble, cost Renault’s automotive division about €440 million. At the same time in Europe though, Renault new models like the compact SUV Captur and new little Clio boosted profit margins.

Renault, and other French companies like Peugeot, don’t report profits at the end of the first and third quarters.

Bernstein Research analyst Max Warburton said Renault’s earnings before interest and tax (EBIT) would be hit by foreign exchange losses of around €300 million in the second half of 2013.

“Renault is sticking to guidance of an automotive profit for the full year but with this foreign exchange headwind we struggle to see consensus forecasts for a profit in the Automotive segment in the second half as realistic. Consensus (among analysts) is for a €150 million profit in the second half following a €211 million profit in the first half – but Renault lost €112 million in the second half of 2012,” Warburton said.

Taking market share
Warburton said Renault is doing better than expected, gaining sales in third world markets and taking market share in Europe with new products.

“Renault is the European (mass car manufacturer) most exposed to slowing emerging markets and would expect tough conditions to eventually affect it, despite the success of Dacia,” Warburton said.

After the first half, investors were worried by a worrying level of stocks and sales to dealers, while others applauded the company for doing well in a tough market. Renault’s automotive division saw sales slip by 0.9 per cent to €20.4 billion in the first half, but its operating margin rose to 2.9 per cent from 2.5 per cent, despite losing sales to Iran. The bankruptcy of Better Place didn’t help either, with the potential loss of 100,000 Fluence electric car sales promised by 2016.

Buy Renault
Citi Research analyst Philip Watkins wasn’t phased by Renault’s latest report, saying he noted Renault’s comment that it expected a positive operating Automotive profit in the second half.

Putting his money where his mouth was, Watkins ended his report saying to investors that Citi remained buyers of Renault shares, which he described as Europe’s cheapest auto stock, with strong products.


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