Renault Profit Recovery Should Continue In 2015 And Beyond.
But Russia, Brazilian Market Developments Worry Some.
“Renault has invested billions in Russia yet seems to be in denial about the consequences of the turmoil now enveloping the country”
Renault investors scrambled to raise their profit estimates after the company’s impressive performance in 2014, but worries about emerging markets prospects in general and Russia in particular dampened enthusiasm.
Renault raised 2014 automotive operating profit by €363 million to €858 million. Automotive revenues rose 0.3 per cent to €38.87 billion compared with 2013.
Renault CEO Carlos Ghosn said sales were boosted by low-cost Dacia sales, new SUVs like the Renault Captur, and the revamped Clio.
Barclays Equity Research analyst Kristina Church said these numbers mark the start of Renault’s core earnings momentum which will continue through 2016. She described Renault as Barclays’ “Top Pick in the European Auto space”.
“With healthy cash generation – €1.1 billion in 2014 – and an Automotive margin stepping up 90 basis points to 2.2 per cent despite woes in emerging markets, we think the stage is set for further earnings expansion as products ramp,” Church said.
Church reckons the auto profit margin will jump two points by 2016, taking it to over four per cent.
Citi Research analyst Philip Watkins said he was impressed by Renault’s cost saving plan, and raised his forecast for 2015 auto operating profit to €1.27 billion from his previous estimate of €1.02 billion. This will improve again in 2016 to €1.7 billion.
Emerging market concern
Commerzbank analyst Sascha Gommel raised his 2015 operating income forecast by 10 per cent, although he expressed concern about Renault’s exposure to emerging markets.
Berenberg Bank analyst Adam Hull raised earnings forecast too, despite Russia and Brazil.
“We raise core Autos EBIT (earnings before interest and tax) from 2.7 per cent to 2.9 per cent in 2016 and from 2.9 per cent to 3.3 per cent in 2016,” Hull said.
The new model programme will help Renault, Hull said.
“The new Espace, Laguna, first-time C-segment cross-over called the Kadjar – similar to the Nissan Qashqai, and Megane are due in 2015, and the new Scenic by mid-2016,” Hull said.
Bernstein Research analyst Max Warburton paid tribute to Renault’s profit progress, but reckoned Renault was being dangerously sanguine about Russia.
“These factors (behind the results) are indisputably positive and look like hard-won achievements. But Renault is highly reliant on emerging markets for its profitability, markets that are now getting ugly. Most notably, Renault has invested billions in Russia yet seems to be in denial about the consequences of the geopolitical and economic turmoil now enveloping the country,” Warburton said.
Buy oil futures, Ukrainian real estate
“Furthermore, Carlos Ghosn said he hopes for a rapid recovery in Russia. This seems wildly optimist . If you share his view, don’t just buy Renault – buy oil futures and Ukrainian real estate too,” Warburton said.
Renault wrote down the book value of its Russian subsidiary AvtoVAZ by close to €250 million.
Barclays’ Church sounds less fearful of possible Russian developments, pointing out Renault seemed able to shore up its defences as the market teetered.
“Despite Russia moving from high single-digit margins on our estimates in 2013 to just above breakeven in 2014, or an almost €300 million swing in profitability, as well as a tough period in LatAm too, Renault managed to grow automotive profits in 2014,” Church said,
Renault, through its affiliate Nissan of Japan and AvtoVAZ has more than 30 per cent of the Russian market. Renault and Nissan indirectly own 50.01 per cent of AvtoVAZ, which makes the Lada, among other vehicles.
Carlos Ghosn said earlier this year the Russian market would probably shrink by another fifth this year. Last year its combined vehicle sales slid seven per cent to 764,245, according to the Moscow-based Association of European Businesses (AEB).
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