Shares in Renault hit seven-month highs and rival Stellantis shot to record peaks on Thursday after the carmakers pledged to reward investors with a big jump in annual dividend and a share buyback worth billions of euros.
The bumper payouts helped soothe investors’ concerns over the outlook for European carmakers as they struggle with competition from cheaper Chinese rivals, higher costs and tepid demand while consumers tighten their budgets due to rising costs of borrowing.
For Stellantis, the return of cash was a relief after agreeing big pay increases to end a prolonged strike by workers in North America last year, which knocked profits in the second half.
At Renault, the stronger cash position and margin growth delivered in 2023 results on Wednesday night were the latest sign that a turnaround under Chief Executive Luca de Meo is bearing fruit.
Renault shares were last up more than 7% at 1041 GMT, set for their best day in more than a year and having touched their highest since July. That compares with a 0.7% rise in Paris’ benchmark CAC 40 (.FCHI), opens new tab.
Renault also said it would propose a dividend of 1.85 euros for 2023, up from a payout of 0.25 euro for 2022, and much better than the 1.4 euros expected by analysts.
Meanwhile, rival Stellantis rose 4.1% to a record high despite its warning of a turbulent 2024. The world’s third largest automaker by revenues, whose brands include Fiat, Jeep and Citroen, said it will launch a share buyback programme worth 3 billion euros this year.
The stock has risen 77% since January 2023, the best performing carmaker in Europe under CEO Carlos Tavares.
“Dividends and buybacks announcements are supporting shares versus a cautious outlook. A cautious outlook is understandable for both companies, as the current macro environment is not easy to navigate,” said Massimo Baggiani, founder of investment boutique Niche Asset Management which owns Renault shares.
“Renault posted an excellent cash flow for 2023 and has a solid outlook for 2024,” he added.
“Stellantis remains a “growth” stock, thanks to earnings improvement, a management of exceptional standing and synergies, although margins are already very good.”
STRIKE IMPACT
Stellantis must manage the fallout from strikes in North America last year which ended with record salary increases for workers at the ‘Detroit Three automakers’.
Stellantis has said the strikes had cost the group almost 750 million euros in terms of profitability last year and around three billion euros in terms of revenue.
CFO Natalie Knight said the longer term impact for Stellantis, in terms of higher costs per car produced, would be similar to those booked by competitors, but the group could rely on strong pricing power in North America than peers Ford and General Motors.
“So the impact for us is certainly going to be on an overall level lower than what you’ve seen from our peers,” she said.
Stellantis said its margin on adjusted operating profit fell to 11.2% in the second half, from 12.3% in the same period of 2022.
Renault posted an annual operating margin of 7.9%, up from 5.5% in 2022, and forecast margin of around 7.5% in 2024. It stood by its 2030 target of double-digit margins by 2030.
Chief Financial Officer Thierry Pieton told analysts on Thursday he expects low single-digit sales volume growth this year. Sales returned to growth in 2023 after four years of consecutive declines as it undergoes a major revamp.
He also sees some benefit from higher car prices and easing raw material costs as the French carmaker prepares to launch 10 models in 2024, including two fully electric cars, the Scenic and the R5, and two hybrids.
Morgan Stanley was positive in its response, but injected a note of caution.
“We think investors will view this OP (operating profit) margin guidance as very attractive and could look to re-rate the shares more permanently as the balance sheet improves and management execution continues,” they said.
“The key risk is if European pricing weakens from here,” they added.
