By Gilles Guillaume and Giulio Piovaccari
PARIS/MILAN (Reuters) -Shares in Stellantis (NYSE:STLA) shot to record peaks and Renault (EPA:RENA) hit seven-month highs on Thursday after the rival automakers 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 automakers as they struggle with competition from cheaper Chinese rivals, higher costs and tepid demand as consumers face rising borrowing costs.
The two European automakers join U.S. rivals General Motors (NYSE:GM) and Ford (NYSE:F) in promising more capital to shareholders.
For Stellantis, the cash return was a relief after agreeing big pay increases to end a prolonged strike by workers in North America last year, which knocked second-half profits.
CEO Carlos Tavares told reporters Stellantis' North American performance in 2023 was "not stellar" as the automaker "wasted" money on discount offers and lost market share.
"All the things operationally we did not do well in 2023, we have the opportunity to improve in 2024," Tavares said. The company said it expected a "turbulent year" in 2024.
At Renault, the stronger cash position and margin growth delivered in 2023 results on Wednesday night were the latest sign that a turnaround under CEO Luca de Meo is bearing fruit.
Renault shares were up more than 6% by mid-afternoon after touching their highest point since July.
Renault will propose a dividend of 1.85 euros for 2023, up from a payout of 0.25 euro for 2022 and above analyst expectations of 1.4 euros.
Meanwhile, Stellantis rose 5.4% to a record high. 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, making it Europe's best-performing automaker.
"Dividends and buybacks announcements are supporting shares versus a cautious outlook," 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."
Both automakers said they were continuing to pursue more affordable electric models while also maintaining profit margins.
STRIKE IMPACT
Stellantis must manage the fallout from strikes in North America last year which brought record salary increases for workers at Detroit's automakers.
CFO Natalie Knight said the longer-term impact for Stellantis, in terms of higher costs per car produced, would be similar to that at rivals GM and Ford, but the group could rely on stronger pricing power in North America.
"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.
After an escalating spat with Rome over the automaker's presence in Italy, Tavares said the company will need all of its plants there.
France's CFDT and CFE-CGC trade unions criticised Stellantis for not paying higher bonuses to staff whilst giving shareholders a big increase in dividends.
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.
CFO 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.
"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.