Renault Profits Dazzle Everyone But Investors

Renault Profits Dazzle Everyone But Investors.

Company Stock Market Value Still Languishes.

“Another concern is that the French government, Renault’s biggest shareholder, is more interested in protecting well-paid jobs in France than boosting efficiency”

Renault produced impressive financial results for 2016, but investors seem determined to ignore the fat profit margins and promises of even more in the future.

Last year Renault’s operating profit jumped 38 per cent to €3.28 billion, which translated to an operating profit margin of 6.4 per cent compared with 5.2 per cent in 2015.

That meant targets were hit a year early. Renault also raised the operating profit margin target to 7 per cent in 2022, bringing it close to a premium player like BMW which has a long-term target of between 8 and 10 per cent.

Renault benefitted from its young product range, including SUVs like the Captur and Dacia Duster, while its investment in emerging markets is starting to pay off.

“In sum, strong results and a solid outlook,” said Commerzbank analyst Sascha Gommel, who rates the stock a “hold”.

UBS Global Research rates Renault stock a “buy”.

Reuters Breaking Views columnist Olaf Storbeck pointed out that investors are not embracing Renault’s success and it remains one of the cheapest European auto stocks. The 7 per cent margin target looks ambitious.

“Ever tighter emission rules and the rise of self-driving vehicles are forcing carmakers to spend more on research and development. Yet if 2016 is any guide, Renault can navigate the trade-off between today’s earnings and tomorrow’s technology. The group’s margins improved, while it also increased capital expenditure and R&D spending by a fifth,” Storbeck said.

Barely higher
But, he said Renault’s share price today is barely higher than two years ago.

“Another concern is that the French government, Renault’s biggest shareholder, is more interested in protecting well-paid jobs in France than boosting efficiency,” Storbeck said.

And that shareholding remains a thorn in the side of CEO Carlos Ghosn, who said alliance partner Nissan Motor wants to forge closer capital ties, but won’t commit until France sells its Renault shares.

France now owns nearly 20 per cent of Renault, after raising its stake  from 15 per cent two years ago.

“The day the French state decides to get out, everything is open, and I can tell you it won’t take much time. But as long as they are in, and they want to continue to be a shareholder of Renault, the alliance will continue to move as it is,” Ghosn told reporters.

Meanwhile Storbeck said Renault’s stock price surely will soon start to reflect its success.

“Ghosn’s consistent ability to deliver on his promises is encouraging. Even if his new goals prove to be overly optimistic, Renault’s (low stock market) valuation looks increasingly hard to justify,” Storbeck said.