EXTRA: Renault Profit Warning Drags Down Shares Of European Car Makers

(The following article is an example of articles that appear in the Alliance News Global 500 service. Our EXTRA reporting is available only on Alliance News professional services.)

18 Oct 2019

(Alliance News) – Groupe Renault SA late on Thursday downgraded its annual guidance amid a more difficult than expected market backdrop and “ever-increasing” costs related to regulation.

Shares in Renault were down 13% at EUR47.96 in Paris on Friday. The European automotive sector felt shockwaves from the warning, with shares in French peer Groupe PSA – the maker of Peugeot cars – slipping 2.4%.

In Frankfurt, Mercedes maker Daimler AG suffered a 1.7% fall in its share price early Friday. BMW AG was down 1.3% and and Volkswagen AG shares 1.0% lower.

Renault said revenue is now expected to decline between 3% and 4%, having previously been seen close to last year’s level at constant exchange rates. The car maker’s operating margin should be around 5%, previously guided to 6%.

Automotive operating free cash flow should be positive in the second half, though this is “not guaranteed” for the full year.

The French company blamed the guidance cut on “an economic environment less favourable than expected and in a regulatory context requiring ever­-increasing costs”.

Renault’s third-quarter revenue was EUR11.3 billion versus EUR11.5 billion a year ago, marking a fall of 1.6%. At constant exchange rates, the decline would have been 1.4%.

Renault said the new management team is reassessing its “Drive the Future” mid-term plan targets.

Deutsche Bank called the warning “significant”, believing it to equate to a 20% cut to operating profit forecasts.

“This downgrade is mostly attributable to higher costs rather than to lower revenues. Thus, there is a risk that the situation will not improve next year since most of these additional costs are expected to be recurrent,” said Deutsche Bank.

Deutsche Bank highlighted that alliance partner Nissan Motor Co, with its own difficulties, is “unlikely to give any protection on the downside”. In addition, Renault’s search for a new chief executive will not allow the group to address inflation costs quickly.

“Overall there are too many uncertainties today. And even if the valuation doesn’t look high (share is at a 5-year low), it is no longer a good reason to keep a Buy rating, especially with negative earnings momentum,” the German bank said, as it cut its recommendation on the stock to Hold from Buy.

By Lucy Heming; lucyheming@alliancenews.com

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