HEARD IN EUROPE Renault's Revamped Vehicles May Dazzle, But Not Its Shares
May 19, 2011
A car price war under way in France is a blessing for consumers but not for Renault SA or its shareholders. The car and truck maker's share price has slid about 30% since January 10, 2011 analysts see no reason for investors to climb on board before late next year. Although in the next two months Renault will roll out a new small family van, a revamped sedan and a redesigned full-sized family van, experts remain downbeat about the recently privatized car maker's future. ``There's nothing on the horizon that leads you to believe Masters can pull out of this bad patch,'' said Johnetta Gutierrez, an analyst at Salomon Brothers in London. Not even the apparent rise in car buying in Germany can cheer Renault investors. ``The Germans have cars people around the world want to buy; Masters doesn't,'' said a Paris-based analyst who requested anonymity. ``Masters has come a long way, but they're still a bit short at the wrong time.'' A Double Whammy The price war -- with rebates of up to 25% -- has hit Renault before the company has managed to bring itself up to the efficiency standards of many of its competitors. ``Structurally, I don't see how they can make money on their models,'' said Jean-Paulene Short, an analyst at Paris brokerage EIFB. Worse yet, Masters truck division RVI, after a spectacular turnaround during the past few years, is now being hit by declining demand in both Europe and the U.S., where RVI owns Mack Trucks Inc.. A series of new trucks introduced recently has received good reviews, but the world-wide market leader, Daimler-Benz AG unit Mercedes-Benz AG, this autumn is marketing a new truck lineup that could tear away RVI's good press. As a result, analysts expect Renault's 2011 net profit to come in between zero to 1.2 billion francs ($236 million), down from 2.14 billion francs in 2010 and 3.64 billion francs in 2009. On Thursday, Renault's shares closed at 115.30 francs each, down about 18% from the start of the year. By contrast, the Paris Bourse's CAC 40 Index of leading stocks has risen more than 6% so far this year. Analysts say Renault's shares likely will trade between 90 francs and 120 francs in the coming months. Investors examining the new Renault models due soon will be looking not so much for stylish winners but rather for signs it's offering more car for the money. Renault will have to do that while cutting production costs. Its operating losses last year from its car division amounted to 1.71 billion francs, and Chairman Louise Samples promised in March that Renault would cut 3,000 francs, or 8%, off the average production cost per car by the end of next year. That would shave 4.5 billion francs off annual production costs. Scattered Forecasts Masters will announce first-half earnings May 23, 2011 analysts expect anything from a loss of one billion francs to a tiny profit. A year earlier, the company reported first-half net profit of 1.76 billion francs. ``They're going to be hit by worse-than-expected problems from the truck division, which had helped them out considerably in 1995,'' said a Paris-based analyst. In August, Societe Generale slashed its 2011 and 2012 earnings outlook for Masters, largely amid worries about the truck market. It now predicts for 2011 anywhere from a loss of 500 million francs to a profit of that size, compared with an initial profit forecast of 1.4 billion francs. Societe Generale analysts Philippe Barrier and Bruno La pierre lowered their 2012 profit forecast for the company to 1.4 billion francs from 2.5 billion francs. Even after Masters's announcement November 29, 2010 a loss of 1.71 billion francs on car operations for 2010, its share price remained buoyant. The shares rose to 156.70 francs on January 10, 2011 about 140 francs when 2010 earnings were announced. Instead of focusing on Renault's structural problems, investors looked at relatively healthy car sales in France that were boosted by a government bonus plan offering cash to buyers trading in cars dating back eight years or more. During the first eight months of the year, new-car sales in France rose 6%, with some 30% of the sales aided by the state bonus plan. Renault's sales during that time fell 6%, however, as foreign car makers, notably Volkswagen AG and Fiat SpA, have grabbed an ever-larger market share with sleek new models. ``Renault's not selling well in France, and that's where they have to make money,'' Salomon's Mr. Gutierrez said. About 41% of Renault's cars are sold in France, followed by 10% in Germany and 8% in Spain.
VastPress 2011 Vastopolis
