Investing.com -- “Renault's (EPA:RENA) Group pre-close update suggested 2024 ended on a high,” said analysts at Jefferies in a note.
This is supported by the company's 2024 pre-close update, which indicates strong momentum, strong earnings, and maintained guidance. This includes a margin and free cash flow of at least 7.5% and €2.5 billion, respectively.
Renault’s revenue for the fourth quarter is expected to reflect robust retail performance and a favorable mix, offset by continued drag from sales to partners.
For the second half of 2024, Renault is projected to achieve adjusted operating profit of €2.05 billion, with a 7.4% margin, and full-year FCF revised upwards to €2.6 billion.
Going forward, Renault’s results are anticipated to benefit from earnings resilience, increased new model activity, and Dacia’s entry into higher-margin segments.
Additionally, Renault’s efforts in carbon compliance through non-plug-in hybrids and below-average vehicle mass are expected to mitigate dependency on high battery-electric vehicle penetration rates.
The analysts emphasized renewed discussions regarding a potential Honda-Nissan combination, which could impact Renault's stake in Nissan (OTC:NSANY).
While Renault has options to monetize its intellectual property or adjust its voting rights in Nissan, Jefferies analysts believe its ability to negotiate a favorable cash deal is limited.
They suggest a potential share swap as a more likely scenario to reduce Renault's Nissan stake, minimizing cash outflows while enabling Honda (NYSE:HMC) and Nissan to pursue their strategic goals.
Renault's financials are strong. It trades at 5x times 2025 cash earnings with an 18% free cash flow yield.
Despite R&D and fixed cost challenges, 2024 and 2025 EBIT forecasts increased 4%. Dividends per share are expected to rise, offering an attractive yield to shareholders.
Jefferies reiterates a "buy" rating for Renault, citing strategic advancements such as improved governance, efficient capital allocation, and cost competitiveness.
However, risks include potential restructuring needs, emissions compliance challenges, and increased competition from Chinese manufacturers.
Shares of the automaker was up 2.2% at 05:45 ET (10:45 GMT).