Renault shares tumble

Published Jul 29, 2017

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Johannesburg - Renault SA shares

posted the biggest decline in a year after first-half profit fell short of

estimates and the carmaker said price pressures are rising in some markets.

The stock fell as much as

7.2 percent, the most since June 2016, after the French automaker warned that

it was struggling to get consumers to pay for all the costs of new technology

and failed to keep pace with Paris-based rival PSA Group. While Renault’s

operating margin increased to 6.2 percent of sales from 6.1 percent,

profitability at the maker of Peugeot and Citroen cars jumped to a record of

7.3 percent from 6.8 percent.

“There were clearly

expectations of stronger operating results,” especially in automotive earnings,

said Arndt Ellinghorst, a London-based analyst with Evercore ISI. Renault’s

first-half operating profit rose 18 percent to 1.82 billion Euros ($2.13

billion), below the 1.85 billion-euro average of three analyst estimates

compiled by Bloomberg.

While the results are a

first-half record for the French carmaker, Renault may not benefit in the

future from price increases in some countries as customers balk at paying for

extra costs for cleaner emissions, potentially weighing on profit, Chief

Financial Officer Clotilde Delbos told reporters. The cost of adding

enhancements to its autos, called the "price mix enrichment effect"

by Renault, had a negative impact of 180 million Euros in the first half, the

carmaker said. 

Carmakers have been

preparing for stricter European regulations on emissions, and scrutiny has

intensified following the Volkswagen AG cheating scandal, which prompted a

decline in demand for diesel cars. French automaker PSA Group plans to import

at least 55,000 gasoline engines from its Chinese plants to meet the growing

demand, leading to extra costs.

“We are as affected as

anybody else” by the decline of diesel, Renault’s head of performance, Stefan

Mueller, told analysts, adding that 47 percent of the passenger cars the group

sold as of June were equipped with diesel engines, versus 55 percent a year

earlier. 

Operating Leverage 

At Renault, revenue climbed

17 percent to 29.54 billion Euros in the first six months of the year, in line

with analysts’ estimates. Net income was 2.38 billion Euros, up from 1.5

billion Euros.

The contribution of

associated companies, mainly Nissan, came to 1.32 billion Euros, compared with

678 million Euros last year. The figure was boosted by the sale of Nissan’s

stake in equipment manufacturer Calsonic Kansei in the first quarter, even as

operating profit at the Japanese carmaker fell in the first quarter. Renault

owns a 43 percent stake in Nissan, while Nissan owns 15 percent of Renault,

forming a partnership that the company dubbed “the Alliance” and that recently added Mitsubishi.

“We see little upside on

core sentiment, unless Nissan returns to peak valuations,” Harald

Hendrickse, a London-based analyst with Morgan Stanley, said in a note.

“Nissan’s first-quarter miss on U.S.

incentives and higher raw materials suggests some concerns there also.”

‘Little Upside’

Renault lifted its market

forecasts in Russia and Brazil earlier

this month. It predicts the global car market will expand by 1.5 percent to 2.5

percent this year, with growth of 5 percent in China,

8 percent in India and 2

percent in Europe. The European market has

been recovering for more than three years after slumping to a two-decade low.

Read also:  Renault shares fall on emissions cheat allegations |

The French automaker sold

1.88 million vehicles in the first half. That includes AvtoVAZ’s sales, which

it consolidated in January. The CFO said the maker of Lada cars almost broke

even in the first half.

Renault confirmed its 2017

financial targets, including an increase in group revenue, at constant exchange

rates and beyond the impact of the consolidation of AvtoVAZ in its accounts, and

higher operating profit in Euros. 

The company intends to

present a plan in October to increase annual revenue by 37 percent to 70

billion Euros by 2022 and lift its operating margin to 7 percent of sales in

five years from 6.4 percent. Timing of that announcement will roughly

correspond to those of its partners, Nissan Motor Co. and Mitsubishi Motors

Corp, with conferences in October or November, the CFO says.

Efficiency savings amounted

to 200 million Euros in the first half, compared to 6 million Euros a year

earlier. Last year, the company missed its own target of saving 350 million Euros.

“Our efforts to cut costs went back to a more traditional level, despite a

continuation of our efforts to prepare the future, including making connected

vehicles,” Delbos said.

BLOOMBERG

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