CAC 40: Winners and Losers (Part 1)

Initially buoyed by Monday’s weaker-than-anticipated results for the National Rally (RN), which boosted the index, investor confidence wavered yesterday amid constituency withdrawals in triangular races.

Today, the CAC 40 shows a tentative recovery, trading slightly positive. However, numerous economic data releases throughout the week are likely to keep volatility elevated until the second-round election results are finalised. Investors are also keeping an eye on the upcoming July 4th elections in the UK.

While the overall market grapples with uncertainty, this article series will delve into the performance of individual companies within the CAC 40. We’ll identify the two top performers that thrived in the first half of 2024 and emerged as market leaders. We’ll also analyse the two companies that underperformed, becoming the market’s flops.This analysis will provide potential insights into the strengths and weaknesses of these specific companies, along with potential outlooks for their futures.

Top 1: Renault (up more than 30% in S1 2024)

French automotive pioneer Renault is undergoing a strategic transformation, driven by its expertise in innovation and commitment to sustainable mobility. This transformation focuses on four key areas:

• Electrification: Renault is heavily invested in developing and producing new electric vehicles to meet the growing demand for eco-friendly transportation.
• Software: Recognizing the importance of software in modern vehicles, Renault is placing emphasis on developing in-house software capabilities and integrating cutting-edge technologies.
• New Mobility: Renault is exploring new mobility solutions beyond traditional car ownership, such as car-sharing and ride-hailing services.
• Circular Economy: Renault is committed to a circular economy approach, focusing on recycling and reusing materials throughout the vehicle lifecycle.

This multi-pronged approach positions Renault to compete effectively in the rapidly evolving automotive landscape.

The focus on electrification aligns with the growing demand for sustainable transportation solutions, driven by stricter emission regulations and increasing consumer eco-consciousness.

Investing in software development ensures Renault remains at the forefront of technological advancements, as cars become increasingly complex and software plays a critical role in performance, safety, and connectivity.

Exploring new mobility solutions allows Renault to tap into alternative revenue streams and cater to changing consumer preferences, particularly in urban areas where car ownership might become less common.

Finally, the circular economy approach minimises waste and environmental impact, resonating with environmentally conscious consumers and potentially reducing production costs.

Renault’s strategic transformation is further bolstered by its strong brand portfolio and long-standing alliance with Nissan and Mitsubishi Motors. This collaboration allows for resource sharing, joint product development, and access to new markets, fostering innovation and cost-efficiency.

Within its own brand portfolio, Renault offers a diverse range of vehicles:

• Renault: Targeting the mass market with reliable and practical cars.
• Dacia: Focusing on budget-conscious consumers with affordable and value-driven vehicles.
• Alpine: Appealing to enthusiasts with high-performance sports cars.
• Mobilize: Addressing future mobility needs with innovative car-sharing, ride-hailing, and other mobility services.

This diverse brand portfolio allows Renault to cater to a wide range of customer needs and preferences, ensuring it remains relevant to a broad market segment in the face of evolving consumer demands.

While Renault’s financing business is performing well, overall car sales have declined in the first quarter of 2024, reflecting a slowdown in the French auto industry, especially for electric vehicles.

Despite these challenges, investment bank Goldman Sachs recently upgraded Renault’s stock rating from “neutral” to “buy” based on several promising factors, such as new product launches, improved cash flow generation, reduced competition, production capacity adjustments, and “Renaulution” Strategy.

Overall, Renault’s strategic transformation, diverse brand portfolio, and strong partnerships position the company for long-term success. While the immediate challenges require focused strategies, the company’s potential for growth and innovation seems to inspire confidence in its future.

While year-to-date performance is impressive, with a near 32% gain, Renault’s stock price has retreated almost 10% from its annual high of over 54.50 euros, reached on June 3rd – prices last seen back in October 2019.

Top 2: Safran (up more than 25% in S1 2024)

Safran is a leading international high-technology group with a global presence in the aeronautics, space, and defence sectors. The company is dedicated to shaping the future of these critical industries by developing innovative and efficient solutions.

Transforming Air Travel

Safran is at the forefront of transforming air travel, aiming to make the skies more accessible, comfortable, and environmentally friendly. They achieve this by designing and manufacturing cutting-edge solutions for:

• Aircraft engines: Developing innovative and efficient engines to reduce fuel consumption and emissions.
• Aircraft equipment: Creating advanced landing gear, wheels, brakes, and other critical systems that enhance safety and performance.
• Aircraft interiors: Designing comfortable and user-friendly cabins with the latest technology to improve passenger experience.

Pushing the Boundaries of Space Exploration

Safran isn’t just focused on Earth. By designing and manufacturing advanced thrusters, equipment, and systems for satellites, launchers, and space stations, they play a vital role in:

• Expanding the frontiers of knowledge linked to space exploration: Safran’s technology enables exploration and discovery, furthering our understanding of space.
• Unlocking new horizons: Their contributions support the development of space programs and pave the way for future advancements.

Securing the Future

Safran is also committed to national security. The company develops and manufactures cutting-edge defence and security systems for:

• Combat aircraft: Contributing to advanced fighter jets and bombers for national defence.
• Missiles: Providing sophisticated missile technology for air and ground defence.
• Ground vehicles: Developing innovative systems for armoured vehicles and other land-based military applications.

By striving for innovation and efficiency across these diverse sectors, Safran positions itself as a global leader in shaping the future of aerospace, defence, and space.

Safran enjoyed a remarkable 2023, driven by a significant rebound in air traffic that surpassed pre-pandemic levels. This surge in demand translated into a staggering €23.2 billion in annual revenue, reflecting an impressive 23.6% organic growth across all segments. Notably, the Propulsion sector, a key indicator of air travel health, outperformed with a remarkable 27% increase, mirroring the strong industry dynamics.

The positive trend continued seamlessly into the first quarter of 2024. Safran reported a robust start with €6.22 billion in revenue, a significant 18.1% rise compared to the same period in 2023. This impressive growth was further bolstered by double-digit growth across all business activities, showcasing Safran’s resilience amidst current economic uncertainties.

Looking deeper, the organic revenue growth stood at 19.1%. Within this, the Propulsion sector remained a leader with a 15.4% increase. Additionally, Equipment & Defense displayed significant growth of 22.7%, and Aircraft Interiors followed suit with a 23.8% increase. This well-rounded growth across all segments underscores the strength of Safran’s diversified business model.

Capitalising on this momentum, Safran confirmed its full-year 2024 outlook during the first quarter. The company projects revenue to reach around €27.4 billion, recurring operating income close to €4.0 billion, and free cash flow around €3.0 billion, subject to the payment schedule of some advance payments. However, supply chain production capabilities remain the main risk factor to monitor.

Encouraged by these results, Morningstar analysts predict sustained high demand for both Safran’s original equipment (new products) and aftermarket equipment (maintenance and repair parts). This optimistic outlook aligns with Safran’s own positive medium-term projections, with analysts valuing the company’s shares at a potential €200 each (around today’s value).

Safran’s stock price experienced a surge in the first half of 2024, climbing over 27%. This momentum culminated in an all-time high above €218 per share in late May. However, the stock has since undergone an 8% correction.

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