Renault: Revenue Rises on Volume Increase, Strong Pricing, and Favorable Mix

No-moat-rated Renault RNO reported first-quarter group revenue of EUR 11.5 billion, up 18% on an as-reported basis from the prior year, but, excluding unfavorable currency translation and discontinued AvtoVAZ operations, revenue jumped 30%. The top-line result trounced the FactSet consensus revenue estimate by nearly 10%. Automotive revenue was 32% higher, also excluding currency and discontinued operations. The “Renaulution” turnaround to improve pricing and mix supported roughly 14 percentage points of the automotive revenue increase. Because the chip shortage was more acute in the year-ago period, volume contributed 19 percentage points. Geographic mix and sales to partners contributed 4 percentage points while others were negative 5 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.

Despite substantially higher first-quarter revenue, management maintained full-year 2023 guidance for at least 6% operating margin and at least EUR 2.0 billion in automotive operational free cash flow. Management also said that supplier cost concessions and other inflationary cost pressures continue to impact the first half then incrementally improve in the second half of 2023, resulting in the maintained margin guidance for the year.

We model a 6% increase in 2023 revenue on 2% higher volume and a 4% bump in average revenue per unit. We also assume group margin at 6%, the low end of management guidance, due to uncertainties from the chip shortage, Ukraine crisis, and possible recession in major auto markets for the remainder of the year. Our fair value estimate remains unchanged at EUR 83. Renault shares currently trade at a steep 59% 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.