Morningstar | RNO Updated Forecasts and Estimates from 13 Nov 2018
No-moat rated Renault reported an 8.0% drop in third-quarter automotive revenue to EUR 10.7 billion, versus EUR 11.6 billion reported a year ago. Excluding a 1.1% decline in AvtoVAZ revenue and a 4.0 percentage point negative impact from currency translation, automotive revenue would have declined 4.3% year over year. Renault also reported that discontinued deliveries to Iran and a change in accounting treatment of interest rate subsidies contributed another 3.3 and 1.0 percentage points to the decline, respectively, making automotive revenue flat with the prior year after all adjustments.The French automaker discloses only revenue in the first and third fiscal quarters, while full financial statements are published for the half- and full-year results. Currently trading at a 26% discount to our EUR 88 fair value estimate, we view the 4-star-rated shares of Renault as attractively priced relative to our forecast for revenue, cash flow, and returns on invested capital.
Third-quarter global volume, excluding China joint ventures, declined 1.7% versus a total industry volume decline of 2.4%. Including China joint venture volume, global volume increased 2.9%. European volume was the primary driver, rising 8.6% on solid management of the WLTP emission certification process.
Management confirmed full-year 2018 guidance, forecasting a 2.0% increase in global industry light vehicle demand, with European demand to increase by 1.5%. Despite WLTP, the European automotive demand outlook appears slightly weak to us, with our full-year forecast for European light vehicle registrations up 2% to 4% to plateau levels previously seen in 2007. Even so, management confirmed its 2018 operating margin guidance. Renault expects to have a better than 6% operating margin before the IFRS 15 impact and positive automotive operational cash flow, but as usual the firm provided no specific cash flow numbers.
Renault is an automobile manufacturer. Co.'s activities have been organized into two main business sectors, in more than 120 countries: Automotive and Sales Financing. Co. designs, develops and sells passenger cars and light commercial vehicles. Following the acquisition of Romanian carmaker Dacia and Samsung Motors' operating assets in South Korea, Co. has three automotive brands: Renault, Dacia and Samsung. RCI Banque, Co.'s captive financing arm, finances sales of the Renault, Renault Samsung Motors (RSM) and Dacia brands, and, in Europe, the Nissan and Infiniti brands. In addition to these two activities, Co. has equity investments in the following two companies: Nissan and AVTOVAZ.
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