RNSDF - Renault: A Solid Start

2023-04-21 06:39:49 ET

Summary

• The company delivered a plus 30% in revenue. However, the stock price is down by more than 7% on Tesla's net income results.
• After four consecutive years of decline, Renault car deliveries are up 14% to 535,000 vehicles.
• Positive price, product mix development, guidance confirmed, and so our valuation.

Today, Renault ( OTCPK:RNSDF ) ( OTCPK:RNLSY ) released its Q1 data and the company had a solid start in 2023 first-three months, exceeding Wall Street consensus expectations. Despite that, Renault's stock price is down by more than 7%. As a reminder, here at the Lab, we have been cautious about Renault's investment case due to its mass-market segment exposure, lower volume in 2023 (that is currently not happening), and a negative catalyst on Nissan's story . However, after carefully analyzing the company with three analyses, 1) Positive Numbers Ahead Of The CMD, 2) Business Transformatio n At Full Speed, and 3) Renault Is Back To Profitable Growth; we decided to provide a buy rating.

Q1 results

The company closed the first quarter with a growing turnover thanks to the increase in sales and prices. Driven by several premium launches such as the Megane, Arkana, and Austral electric version models, the French carmaker records revenues of €11.5 billion, a figure that signed a plus 30% at €8.85 billion compared to the Q1 2022 figure. As already mentioned, this was a solid beat vs analysts' consensus which on average, they were forecasting top-line sales of €11.08 billion. At the aggregate level, car global deliveries were also performing well, and in Q1, after four consecutive years of decline, Renault managed to increase its volume by 14% to 535,000 vehicles.

Renault heavily suffered from the pandemic outbreak more than other automakers. After COVID-19, the company was also affected by its Russian exposure (have a look at our publication on Renault as The Most Exposed Automotive Company In Russia). In addition, the French car player was negatively influenced by chips' global shortage, another factor that explains the four-year sales decline. The CEO decided to focus on electric cars and on higher margins to increase profits. This explains the acceleration in the launch of new models, such as the SUV version of the Espace minivan and the restyling of the best-selling city car (Clio). In addition, another 12 new models will arrive in 2024. Moreover, the company is moving forward with signing key partnerships with global leaders such as Qualcomm and Google .

In 2022, Renault ranked third in Europe for electric vehicle sales, behind Tesla and Volkswagen. The company was a forerunner in the electric race but it starts to pay Tesla price competition. Elon Musk started a trade war and announced new cuts in the price of his cars to increase Tesla's market share. This announcement will force Renault to review its price lists around the world and explain the negative stock price performance. Here at the Lab, we recently analyzed the EU car market trend (where Renault is more exposed). In March, according to Acea , EU car sales recorded a plus 28.8% in deliveries and exceeded the 1 million unit sales with all major markets recording double-digit growth.

Volkswagen confirmed its leadership position with 275,757 cars sold (+35%) and a market share of 25.3%. The second performer was Stellantis with 216,862 cars (+28.7%) and a market share of 19.9%. Renault was in the third position with 110,469 vehicles (+30.4%) and a 10.2% share, outperforming its competitors (excluding VW).

It is key to note that the company continued to benefit from a positive price effect. Looking at the turnover detail, Renault recorded higher selling prices and a better product MIX evolution, signing a plus €760 and €420 million respectively. New BEV products and new commercial policies continue to have a solid momentum, especially in the EU.

Conclusion and Valuation

Last year, the company delivered a solid operational performance and increased its 2023 outlook. This positive Q1 allows Renault to confirm its forecasts and to aim for an operating margin of at least 6% for the full year, in addition to an automotive operating free cash flow of at least 2 billion. Here at the Lab, we forecasted a 2023-2024 EPS of 8.3 and 9.1x respectively which we confirmed (once again) today. Considering a holding discount and valuing the company with a P/E of 5x, we derive an equity value of €41.5 per share ($11.5 in ADR). As a reminder, Renault is back to pay a dividend (a very limited amount) and is currently yielding 0.68% and our valuation does not include Ampère's future IPO. Downside risks are included in our initiation of coverage .

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