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Renault Expected To Raise Profits In 2016

Renault Expected To Raise Profits In 2016.

“If emerging market losses don’t spiral in 2016, then the foundations look more secure for Renault’s European model cycle to power earnings higher

Renault’s financial performance is impressing investors and ratings agencies as it fights off challenges in emerging markets while performing well in Europe.

Fitch Ratings said Renault’s group operating profit margin, which reached 3.9 per cent in 2014, should improve to just above five per cent by the end of next year.

“Renault’s restructuring measures have streamlined its cost structure, lowered its breakeven point and made it more resistant to a possible downturn. In particular, we expect adverse conditions in Russia and Latin America in 2015, although this should be offset by an improving environment in Europe,” Fitch said in a report.

Renault reported at the end of October that third quarter sales rose 9.4 per cent to €9.34 billion, helped by new models in Europe, and more business with alliance partners Nissan and Daimler. French companies only report profitability for the half and full year. Renault raised its sales growth forecast for the European market as a whole in 2015 to eight per cent from a previous five per cent guesstimate.

Bernstein Research analyst Max Warburton was also impressed.

“If emerging market losses don’t spiral in 2016, then the foundations look more secure for Renault’s European model cycle to power earnings higher. Renault margins are always sensitive to the Megane/Scenic model cycle. This time Renault also has the new Kadjar SUV, the new Espace and a Laguna replacement called the Talisman. With the company replacing all of its above-average price point cars and expanding its offering, it is almost guaranteed to grow volumes and margins in Europe in 2016,” Warburton said.

Commerzbank analyst Sascha Gommel is a little less bullish, raising sales estimates, but holding back on profit expectations because of possible problems with foreign exchange headwinds. Despite this, Commerzbank raised its EBIT (earnings before interest and tax) profit forecast for 2016 to €2.83 billion from its previous estimate of €2.77 billion.

Profit resilience
Fitch Ratings said Renault has improved its image and product portfolio, while showing underlying profit resilience.

“The group’s sound liquidity and healthy financial structure provide it with more flexibility to go through the next cyclical downturn or face potential financial challenges without significantly impairing its main credit ratios, which is a key characteristic of an investment grade auto manufacturer,” Fitch said.

Fitch had a couple of caveats though. It was difficult to predict the possible consequences of a potential shift from diesel to petrol engines, hybrids and electric vehicles. Renault’s reliance on small and medium sized vehicles outside of Europe meant that it was vulnerable to fierce competition.

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