Renault Earnings: Unfavorable Currency Dents Revenue Growth but Turnaround on Track

No-moat-rated Renault RNO reported third-quarter group revenue of EUR 10.5 billion, up 8% from the prior year on an as-reported basis, but, excluding unfavorable currency translation, revenue jumped 14%. The top-line result beat the FactSet consensus revenue estimate by 2%. Automotive revenue was 5% higher, but excluding currency, improved 11% year over year. The “Renaulution” turnaround plan to improve pricing and mix supported roughly 7 percentage points of the automotive revenue increase. Volume improved 6% on a 22% increase in France and 12% in the rest of Europe. Geographic mix and sales to partners contributed 3 percentage points to revenue growth while sales to partners also added 3 percentage points. The French automaker discloses only revenue in the first and third quarters while full financial statements are reported for the half and full year.

Management maintained full-year 2023 guidance, which was updated at the end of June from at least 6% operating margin and at least EUR 2.0 billion in automotive operational free cash flow, to 7%-8% margin and at least EUR 2.5 billion cash flow. Management also said it expects second-half margins to be better than the 7.6% result reported for the first half.

We model a 6% increase in 2023 consolidated revenue on 2% higher volume and a 4% bump in average revenue per unit. We raised our margin assumption from 7.0% to 7.7% based on management’s comments but no change in margin guidance range. We remain concerned about uncertainties from output disruption (chips, logistics), war in Israel and Ukraine, and soft economic conditions in major auto markets. We raised our fair value estimate from EUR 87 to EUR 89 due to the time value on money since our last update, while changes to our model had only a minimal effect. Renault shares currently trade at a steep 62% discount to our fair value. In our opinion, for patient long-term investors willing to accept turnaround execution risk, this 5-star-rated stock is attractively valued.