E Is Renault A Value Bonanza?

Earnings Call Recap

On February 14, 2019, Renault published its earnings report for the fourth quarter of 2018. While some could feel disappointed that organic revenues alongside with EPS has declined plus dividends has not been raised , I’ve found myself rather satisfied with overall performance of the Renault Group, considering numerous headwinds the company was facing during last year (including arrest of its CEO, American embargo on Iran, introduction of WLTP and financial distress in core markets such as Turkey, Argentina, and Brazil). Below I will shortly summarise the key points from my article published a few weeks ago:

Renault managed to surprise many observers with rather stable results, in line with general three-point guidance (slide 17) declared on the previous earnings call. They have increased Group revenues by 2.5% (at constant rates), maintained operating margin above 6% (6.3% to be precise) and generated positive operational free cash flow (of over €600 million).

Nevertheless, the financial condition of French manufacturer has worsened during the last quarter, because there was little to no silver lining to key metrics. Group revenue increased at a constant rate, fair enough, but in nominal terms revenue dropped by 2.3% and organic growth was negative by whopping 5.7% (accordingly to my estimations, for further details please refer to the link here). Operating margin exceeded 6%, but automotive margins were around 4.3%, well below the desired level. If we talk about operating cash flow, it has decreased by over 300 million euro in comparison to the previous year.

Adding to the misery there was bad news coming from Nissan, a car manufacturer where Renault has a very significant stake of 43% of shares. In last year Nissan managed to contribute in the form of dividends only €1.5 billion, 1.2 billion euros less than in the previous year.

These beatings from all sides heavily affected Renault net income bringing it down to €3.4 billion, thus experiencing drop by 35%. It means that new earnings ratio dropped down to €12.24 per share, a significant fall from 2017's €19.23 p/share.  As Thierry Bollore said during the Q&A session: “All-in-all, 2018 headwinds cost us about €3.6 billion in revenues and one point of operating profit margin”.

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The author is long Renault and has no plans to add/sell its holdings.

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Dick Kaplan 8 months ago Member's comment

Nice, I'm bullish on Renault. $RNSDF