(News Bulletin 247) – The car manufacturer is making strong progress on the Paris Stock Exchange this Thursday, supported by a margin slightly higher than expectations and above all an impressive cash generation.

This time Luca de Meo can fully enjoy the good market reception of Renault’s results. No price cuts from Tesla the day before to spoil the party, like in the first quarter of 2023, no pre-announcement like during the half-year results, no disappointing volumes like in the third quarter.

The general director of the diamond group can thus watch his group’s action take off: around 9:50 a.m. Renault rose 6.7% at the end of the morning, signing the best performance in the CAC 40. The French manufacturer even has the luxury of ahead (for the time being) of the other major manufacturer on the Parisian market, Stellantis, which gained 4.1%.

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A dividend that surprises in a good way

The results delivered Wednesday evening ticked the right boxes for the market. Over the whole of 2023, the group achieved a record operating margin of 7.9%. Oddo BHF notes that the group generated an operating margin of 8.1% in the second half of 2023, a little more than the 8% expected by consensus.

“We note that volumes were, as expected, less decisive with most of the performance once again due to a net/price/enrichment mix (in short, the group’s ability to raise its prices and direct sales towards more profitable models with more options, Editor’s note) very robust which more than compensated for the increase in costs and more unfavorable exchange rate effects”, underlines the research office.

The real surprise comes from cash generation, well above expectations in the second half, exceeding consensus by 30%, according to Morgan Stanley. Free cash flow stood at 1.25 billion euros against expectations of 870 million euros, according to Oddo BHF. And over the whole year, the diamond company generated a record free cash flow of more than 3 billion euros.

Another good surprise noted by Morgan Stanley, a logical consequence of more robust cash generation than expected, the dividend is stronger than expected. Renault announced that it would propose to pay a dividend of 1.85 euros per share for 2023, around 33% more than analysts’ estimate.

Reassuring prospects

Final point: the outlook for the 2024 financial year is satisfactory. Renault intends to defend its profitability, counting on an operating margin rate of at least 7.5% and a free cash flow greater than or equal to 2.5 billion euros.

Oddo BHF considers these forecasts “robust” and “likely to improve confidence” in the group’s actions. In particular “its ability to offset headwinds (absence of market growth, price peak probably behind, effects of the deconsolidation of Horse, the thermal division) and continue to improve its operational performance”, adds the financial intermediary.

The research office reaffirms its opinion of “outperformance” on value, judging that Renault can be one of the rare manufacturers to improve its profitability in 2024 and thus demonstrate much stronger resilience than “many” imagine in an “environment more difficult”.

Oddo BHF also sees several catalysts in the coming months such as new product launches, an upgrade of its credit rating from rating agencies, the finalization of the incorporation of Horse with the opening of its capital to Saudi Aramco, or even new sales of Nissan shares. This while the value only trades three times the expected profits, adds the financial intermediary.

“It remains to be seen whether investors will end up giving some credit to the group’s execution,” judges Stifel. “However, with 3.7 billion euros of net cash and 4 billion euros of Nissan shares remaining to be monetized, the current market capitalization of 11 billion euros appears far too low,” the bank concludes.