Renault’s H1 results were in-line and the company is on track to achieve its full year guidance, but there were a few flies in the ointment in the results and the call. Auto’s EBIT of EUR348m was just 1% better than consensus, thanks to good cost savings despite some inventory reduction (most of which at the independent dealers, which does not impact the group’s FCF, but is clearly as important). The Auto FCF was very negative though due by EUR861m working capital shortfall. The relative disappointment comes from the following issues. First, despite a very good result from Monozukuri in H1, Renault sticks to its guidance of savings for 2014 “in line with last year”, though “with confidence”. Yes, the group is working on increasing synergies, but the benefits will be realised further on. Second, the price/mix enrichment was a -177m negative variance vs. H1 2013. An ageing product range (Twingo now, but increasingly Megane), an unfavourable mix of products, and a difficult situation in emerging markets are all not helping. We do not believe that Renault is relaxing its pricing discipline yet (and its objective of prices ahead of the basket of comparables). Price/Enrichment will be negative in H2 most likely, but not as much as in H1. That being said, Renault’s commercial performance was good (but already known) with market share gains in most regions and management spoke confidently about new product launches in Brazil (Sandero). European market volume guidance was increased, but this is not a surprise.
We would remain long, but this morning we are reminded why we have a preference for Peugeot, a much clearer story in our view.
