Renault share price up, beats expectations on strong European demand

Renault SA reported Thursday a significant increase in full-year net profit after the French carmaker benefited from robust European sales and cost cuts.

The company reported 2014 net profit of €1.9 billion, more than tripled compared to the €586 million in the previous year. The figure also beat the €1.8 billion projection of the 20 analysts surveyed by FactSet. Full-year revenue climbed 0.3% to €41.1 billion.

Following six straight years of drops, the European vehicle market picked up activity and grew 5.7% in 2014. Renault managed to capitalize on the increase and reported 12.5% more vehicle sales in the region compared to last year, driven by a strong demand for its budged Dacia brand.

Overall, sales increased 3.2% despite disappointing performance in Argentina, Brazil and Russia, where sales dropped 11%.

Russia and Brazil are key markets for Renault, but they have been both hit by an economic slowdown during the past year. Russia suffered a substantial decrease of the value of its currency, which rendered most importers operations unprofitable or crippled.

Renault is continuing its expansion towards emerging markets, ignoring the two largest vehicle markets in the world, with the intention to launch a very affordable vehicle in India by the end of 2015.

The French manufacturer also plans to boost its presence in the Chinese market, where Renault recently entered. In 2013 the company agreed to start construction of manufacturing plant in China, as a part of an agreement with Dongfeng Motors.

The production is expected to be sold locally, with the first vehicle to roll out in the first half of 2016. Nissan, which is 43%-owned by Renault, is also helping with operations.

Renault and Nissan also own a majority stake in Russias largest caremaker Avtovaz, further exposing Frances second-biggest vehicle manufacturer to volatile in the country.

Despite being the main source of sales growth pre-2014 the Russian car market has been significantly hurt, which reflected in the €182 million of losses that Renault reported from its stake in Avtovaz, or five times more than the previous year.

“We met all the objectives announced for 2014,” said Chief Executive Carlos Ghosn. “2015 should allow us to take a new step forward, thanks to an unprecedented product offensive in the history of Renault”

Renault gained 0.26% on Wednesday and closed at €69.21 in Paris. On Thursday the stock jumped 8.81% to €75.31 at 10:27 GMT, marking a one-year increase of 14.44%. The company is valued at €20.47 billion.

According to the Financial Times, the 22 analysts offering 12-month price targets for Renault have a median target of €75.50, with a high estimate of €95.00 and a low estimate of €60.00. The median estimate represents a 9.09% increase from the last closing price.