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Renault Profits To Be Driven Higher By New Models In 2016

Renault Profits To Be Driven Higher By New Models In 2016.

Profit Target For 2017 Already Reached In 2015.

“We expect margin to improve further in 2016 to 5.7 per cent, thanks to product offensive at Renault with 15 new cars over 21 months and the ongoing work on synergies with Nissan

Renault profits should improve again in 2016, helped by a rash of new models and despite big losses likely at its Russian AvtoVAZ subsidiary.

Analysts, again bravely brushing aside thoughts of a global economic meltdown, recommended investors buy Renault shares after it met its 2017 operating profit target of more than five per cent, two years early.

In 2015 Renault net income rose to €2.82 billion from €1.98 billion a year earlier, as sales jumped 10.4 per cent to €45.33 billion. Renault operating profit hit 5.1 per cent compared with 3.9 per cent in 2014. Renault sales were spurred by the successful new Captur small SUV, its Trafic van, with some help from the cut-price Dacia brand. AvtoVAZ cost it €620 million, which is likely to need another injection of capital in 2016 as Russian car sales dive.

Barclays Equity Research analyst Kristina Church applauded Renault for the way it has rescued itself from the previous financial crisis.

“We expect margin to improve further in 2016 to 5.7 per cent, thanks to unseen product offensive at Renault with 15 new cars over 21 months and the ongoing work on synergies with Nissan. By the end of the year, the CEO (Carlos Ghosn) should have totally reshaped the old Renault that used to rely on one region and one car – Europe and the Megan/Scenic,” Church said.

Investment researcher Evercore ISI likes what it sees at Renault too.

“With a new Megane around the corner, market opportunities in China, Iran and India and, hopefully, a slowdown in the deterioration in Russia and LATAM, it is not surprising to see Renault guide for both higher revenues and operating margins in 2016 as well as continued positive cash flow,” Evercore ISI analyst Arndt Ellinghorst said.

A Few Negatives
The Wall Street Journal’s “Heard on the Street” columnist Stephen Wilmot pointed out a few negatives that will confront Renault. The cost of meeting CO2 and noxious emissions regulation looms large, and Wilmot compared the cost to Renault of research and development into meeting regulation was €1,113 in 2015 a car, up from €1,006 in 2014, with the actual operating profit in 2015 of €534 per car. There are problems in Brazil, as well as Russia.

“The combination of wafer-thin margins and vast R&D bills helps explain why investors don’t pay up for European volume car manufacturers,” Wilmot said.

Despite this, plucky investors might want to buy Renault shares.

“Yet those who can get comfortable with the automotive industry’s legendary cyclicality and dubious economics could do worse than buy into Renault’s recover story,” Wilmot said.

 

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