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Renault continues to gain credibility - not just when it comes to financial performance but also in regards to shareholder returns. We stick with Outperform. What did we learn from H2? Renault delivered an H2 Ebit broadly in line with consensus but a solid beat on the FCF line (+EUR500m) and will pay a higher than expected dividend (+33%). Moreover, for 2024 management pointed towards a further improvement in underlying profitability (=7.5% operating margin vs 6.9% in 2023) and another year of strong cash generation (=EUR2.5bn). This evidently reflects Renault''s confidence in its product momentum and the cost compression its new launches should crystallise. A return to an investment grade rating now sounds within reach, opening the door to a further improvement in shareholder returns. How does it change our investment view? Today''s results and management commentary confirm our view that Renault''s focus on the delivery of affordable vehicles facilitated by a determined cost cutting effort is well suited to current market dynamics. This is particularly true in the context of a likely BEV fire sale as OEMs scramble for EU emissions compliance in 2025. The group is also best placed to benefit from an upcoming European volume rebound, which should support FCF thanks to Renault payables receivables imbalance. Our latest FCF forecasts for the coming 3 years sum to c.2x Renault''s enterprise value. Earnings, rating and target price changes We adjust our forecasts to reflect 2H23 results (including associate earnings from Nissan published last week) and management''s latest outlook commentary. Our price target increased to EUR51. + Our key questions for management inside
Renault Renault SA
With the cancellation of Ampere''s IPO, 2024 may have gotten off to an inauspicious start for Renault. But Europe''s volume rebound, supportive new model momentum and an increasingly competitive BEV line-up look promising and prompt us to upgrade to Outperform. The European recovery play With 80% of EBIT generated in Europe, Renault is best placed to benefit from the rapid rebound in regional sales volumes we expect to materialise from here. Pricing pressure will intensify, no doubt, but the group''s supportive product cycle should soften the blow. And thanks to a large payables-receivables imbalance, a volume bounce should also deliver a working capital led cash inflow. Renault''s BEV story isn''t over yet The cancellation of the Ampere IPO should not detract from the merits of Renault''s BEV strategy. We continue to regard Renault''s focus on the delivery of affordable BEVs facilitated by determined cost compression as commendable. It is this focus on BEV cost cutting which should leave Renault competitively positioned vs new entrants, even in the context of an upcoming BEV fire sale. Safe haven in a protectionism storm France has already linked BEV subsidies to a European production base with Italy likely to follow. The EU''s Chinese BEV anti-subsidy probe is likely to end with greater support for European OEMs or higher import tariffs. A second Trump presidency could see a resurgence in US-EU/US-Sino trade friction. Renault''s geographical footprint leaves it well protected (or even benefitting) in any scenario. PT lifted to EUR49 (+38% upside), upgrading to Outperform More supportive European volumes, gentler pricing pressure and ongoing cost compression combined with a stronger operating performance at Nissan drives our EPS up +20%/62% for 2024/25e. Our new price target of EUR49 offers 38% upside, prompting us to upgrade to Outperform. Also see Automotive published today.
We have adjusted our estimates to reflect a capital loss to Renault on disposal of a 5% stake in Nissan of EUR1bn. The capital loss on disposal was initially expected to be up to EUR1.5 billion, but this estimate was today reduced to around EUR1 billion as Nissan has decided to cancel all the acquired shares, implying an accretive effect on the capital position. We do not consider the changes to be material; our rating is unchanged.
Ampere’s CMD was the opportunity for Renault to reassure investors on its near-term EV game plan. Ampere expects a FCF breakeven in 2 years with 300k units and an implied revenue per car of €33k. The BEV-ICE price parity was also on the menu but expected by 2027-28 as costs are slashed by 40%. Renault presented its interpretation of the “<€20k BEV”, thus joining Stellantis in frontrunning Tesla in the people’s car segment. The IPO window for Ampere was maintained.
Renault’s Q3 23 results (only revenues) slightly missed consensus expectations on the back of a weaker-than-expected volume effect, stemming from a voluntary destocking at dealerships, despite a pricing effect beating expectations. However, we expect limited changes to the FY23 consensus as Renault confirmed its guidance with profitability seen at the upper end of the range. We confirm our positive rating, believing that this miss on the top line does not reflect the underlying structural improvement that is occurring further down the P&L.
Management sounded confident on the margin benefits of upcoming new product launches, but it may take more to alleviate investor concerns around growing macro and competitive pressures into 2024... What did we learn from the quarter? Renault''s Q3 automotive revenues came in 3% below consensus. The group reported a negative volume dynamic (-1.6% vs cons +4.3%) as a result of dealer destocking (wholesales -3.5%) and a flat mix effect (-0.4% vs cons +1.0%) given stronger sales of the pre-facelift Clio and lower Megane E-tech invoices. Pricing was ahead of expectations, however (+7.5% vs cons 5.5%), thanks to the group''s commercial policies and FX offset. Management reiterated its FY outlook for a margin of 7-8%, with H2 set to see a sequential improvement in profitability vs H1 (7.6%), and FCF is still expected to reach at least EUR2.5bn. The group''s new corporate structure continues to take shape, with the Ampere carve out becoming effective in November (IPO targeted 1H24) and Renault due to complete the placement of a 28.4% Nissan stake into trust in Q4 (opening up monetization options). How does it change our investment view? Management sought to send a reassuring message to the market by pointing to a further margin improvement in 2024 thanks to the group''s well filled pipeline of new products, which should benefit from a substantially lower cost base. This was insufficient, however, to alleviate investor concerns around intensifying macro and competitive pressures in the context of (still) high inventories, a disappointing product mix (even if this should improve in Q4) and limited BEV sales momentum. Attention will now turn to the Ampere CMD on November 15th, where management needs to convince on both the competitiveness of its new BEV launches, and its ability to compress BEV costs at least as rapidly as electric vehicle prices are likely to contract. Earnings, rating and target price changes We have made minor adjustments to our...
The guidance upgrade was not enough. Renault posted H1 23 figures significantly above what it targeted only a month ago, therefore making delivery of the FY23 guidance an easier play. Market conditions in H1 were a clear support for numerous OEMs. However, we believe that Renault’s portfolio turnaround has a huge potential to deliver structural improvements on top. Bear in mind that the bulk of the renewal of the model lineup is coming next year. We keep our Buy rating.
Renault upgraded its FY23 margin and FCF guidance sending a positive message on the margin profile and the welcome of its new product range. This was backed by the strong product mix and lower headwinds on variable costs. Consensus’ prudence is likely to remain for FY24E as the first impacts of the price war have yet to reflect on Renault’s and peers’ P&L. However, it puts 2025 targets within reach. Ampere’s IPO is still on the table but rather for early FY24.
Renault has drawn up the guidelines for the future of its premium brand Alpine. This is a high-risk plan aiming at succeeding where Renault repeatedly failed (expanding in the premium segment, expanding globally, and getting recognition) but targeting the right trends, in our view. Though, we do not expect investors to buy into Renault shares on the back of this Alpine-specific teaching, given the shorter-term worries on the health of demand for autos, and the prospective IPO of Ampère.
Renault organised a tech session to showcase its vision of the SDV (Software-Defined Vehicle). This not-so-futuristic architecture should not only decrease development costs and times but also allow for revenues from services during the lifecycle of the vehicle. In our view, Renault’s approach appears very much consistent and well dimensioned with its overall “horizontal diversification” strategy. While the first SDV will be a van in 2026, its upcoming BEV offer already embarks building blocks of the SDV.
Renault’s Q1 23 results beat the street’s estimates on the back of welcome outperformance in terms of volumes, product mix and price mix. Unsurprisingly, the guidance was confirmed but concerns over the sustainability of BEV prices remained an overhang for investors as Tesla is becoming increasingly aggressive. While we continue to find the Renault restructuring equity story compelling, we acknowledge that, in the short term, the weakness in the share price could continue until any impact or non-impact materializes.
Buoyed by strong delivery in 2H2022, management''s outlook for 2023 sounded supremely confident. We agree that the near term looks promising but remain concerned that longer term prospects for BEV pricing are deteriorating. We stick with Neutral. What did we learn from H2? Renault''s 2H22 beat consensus expectations for both earnings and FCF (operating profit +8%, FCF +60%). Like its automaker peers, the group continues to benefit from a supportive pricing environment, but also deserves credit for its efforts when it comes to fixed cost compression, commercial re-positioning and the next generation vehicle line-up. Renault''s order book currently sits at 3.5 months, but was said to be expanding still, while an unusually high level of dealer inventory was blamed on logistics bottlenecks. A =6% margin and =EUR2bn FCF outlook for 2023 places Renault on the path to delivering its mid-term targets (8% margin in 2025, average FCF 2bn pa 2023-25). How does it change our investment view? It''s hard not to be impressed with the ongoing delivery at Renault. And the message around order intake is certainly reassuring, at least for the coming quarters. What we are unsure of, however, is in how far Renault will be able to withstand the intensifying pricing pressure as Tesla encroaches on its territory from above, while new Chinese players simultaneously seek to break into the bottom of the market. Earnings, rating and target price changes We adjust our forecasts to reflect 2H22''s results, a better mix dynamic through 2023 and more gradually intensifying pricing pressure. Our price target increases 10% to EUR44. + Our key questions for management How do the price war kicked off by Tesla and intensifying competition from Chinese newcomers impact your financial targets for Ampere (breakeven 2025, ~10% margin in 2030)?
Renault’s FY22 results beat the street expectations on both sales and margin, and were close to our above-consensus forecast. The company symbolically resumed its dividend payment to signal its confidence in future FCF generation, but we like that the investment grade rating remains the top priority. The FY23 outlook matches the long-term plan and includes a cautious margin step-up. The order book remains high and the company refrained from entering roller coaster pricing “à la Tesla”. Our FY23 figures merit an upgrade.
The reshaping of the Renault-Nissan-Mitsubishi alliance has been officialised. The companies have defined a legal framework to their cooperation that lacked details and let the door open for disappointment by stakeholders. Renault is not in a hurry to divest Nissan shares. The latest announcements support Ampere’s valuation which remains highly tied to Nissan’s say. Other projects announced mainly highlight that the three companies are set to continue their operational partnerships. They still have to convince investors of the effective simplification of the Alliance’s governance.
The complexity of dealing with the Alliance have been weighing on Renault’s valuation for years but what if Renault leverages its knowhow in managing partnerships BU by BU? The last CMD of the “Renaulution” was all about reaching scale on each of the group’s businesses with an expected settlement of two new (but already well-equipped) entities (AMPERE and HORSE). Despite ambitious but credible financial targets, we wait for Nissan’s decision to get the full picture of this unique sprawling structure.
Renault’s Q3 22 sales figures came in bang in line with consensus estimates. Key worries from investors have yet to be addressed/materialised into figures, i.e. the risk of worsening demand for 2023, the risk of pressure on cash flow (sole indication is the confirmed FY22 guidance) and, most importantly, the future of the Alliance (likely to be a key topic at the CMD to be held on 8 November). We plan minor changes to our figures following this release.
Management''s tone remains supremely confident. Yet with macro clouds gathering and BEV profitability prospects darkening, we remain concerned around margin sustainability into 2023. What did we learn from the quarter? Renault has delivered yet another strong quarter, with pricing and mix boosting revenue by 13.5% (price +12.8%, mix +0.7%). This was light vs. cons. of +15.1% (+11.8% price, +3.3% mix), which had drifted up into the print, but impressive nonetheless. Volume growth managed to beat expectations, albeit helped by dealer restocking. Perhaps the biggest surprise came from management''s confidence around prospects for ''23 with the CFO adamant that pricing will stick (given a lower fixed cost base and a de-prioritization of market share), mix will improve (thanks to eMegane and Austral) and that the two will combine with productivity gains to offset inflationary pressures. Moreover, order books remain at H1''s levels, and are equivalent to 3.5 months of sales. How does it change our investment view? It''s hard not to be impressed with the ongoing delivery of price gains or the strength of Renault''s new line-up as it pushes into the C segment. We remain to be convinced however, that this is really enough to turn the story ''contra-cyclical'' given both the magnitude of the macro challenges currently brewing and more gloomy prospects for BEV profitability (higher costs, falling TCO advantages, scaled back incentives and greater competition). We continue to see downside risk to consensus expectations, which currently assume that (auto) margins rise through 2023 and 2024. Near term, however, the share price is likely to benefit from the prospect of November''s CMD, where the group will update mid- and longer-term targets and present a new corporate structure. The share price could also be impacted by the potential announcement of changes to the Renault Nissan alliance. Earnings, rating and target price changes We adjust our forecasts to...
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