Friday, August 12, 2022

Renault: Looking Beyond The Numbers (OTCMKTS:RNSDF)


Interior of a electric car

Aimur Kytt/iStock Editorial via Getty Images

Almost a week ago, Renault Group (OTCPK:RNSDF) published its half-year numbers, posting a loss of almost €1.4 billion. Besides the last line of the P&L, the group has improved its margins by selling more expensive and better-equipped vehicles with fewer discounts. Q2 performances were positive and the CEO restructuring process seems to pay off.

Starting by quoting the CEO who confirmed that,

Renault Group is resolutely pursuing its in-depth transformation and turnaround of its activities. These first-half results are proof of this: despite all the headwinds related to the stop of activity in Russia, the semiconductor crisis and cost inflation, Renault continues to improve its operating performance and is beginning to benefit from the success of new launches

Here at the Lab, we already commented about the French automaker – here below our previous publications in which we report the latest company development:

Half-Year Results

From January to June 2021, the group’s net income delivered a profit of €354 million compared to the important loss achieved during this semester. Once again, this deadweight loss is the result of a €2.3 billion charge linked to the write-off of its Russian industrial activities, where the group had a dominant market position (i.e. it was its second-largest market).

Looking at the numbers, auto sales fell by 30% including Russian activity. However, excluding Avtovaz and Renault Russia, the number of cars sold by the French group is down by around 12%. In addition, we should report the strong growth of the electric market division. More in specifics, the E-Tech range and hybrid powertrains now represent 36% of passenger car sales in Europe in the first half of the year compared to the 26% achieved in the same period of 2021. The group’s EV order book in Europe remains “at a high level” and Mégane E-Tech Electric is proving to be “a real success with customers” with 20.000 orders in just four months.

Despite the lower number of vehicles sold and a context still marked by the semiconductor crisis, turnover remained stable at around €21.1 billion delivering a plus 0.3%. More impressive given the inflationary pressure was the operating margin results which increased by 2.6 points over one year to €988 million. In percentage, the operating profit margin stood at 4.7% versus the 2.1% recorded last year. These outstanding results were driven by a better product mix and higher automotive selling prices that totally offset lower volumes. In the period, there was a supportive FCF generation and debt obligations were further reduced.

Renault Group's consolidated results

Renault Group’s consolidated results

Conclusion & Valuation

More importantly, the CEO increased Renault’s financial guidance. In 2022, he now expects a group operating margin of more than 5% (from 3%) and FCF generation higher than €1.5 billion (from “positive”). During the call, the CEO emphasized that the semiconductor crisis has reduced production of more than 300.000 vehicles in the year. While we recognize that <5% operating margin is not optimal within the sector, we should note that Renault achieved this result in a period that was exiled from its second-biggest market, while it is investing in EV transition and there is a group restructuring in place. The future outlook implies that the second half of the year will be better. The French automaker raised its forecast above Mare Evidence Lab’s expectation, so our internal team is raising top-line sales, EBIT and earning per share estimates, remaining neutral ahead of the next CMD that the company plans to present this fall.

Renault Group guidance

Renault Group guidance

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