LONDON: Renault's shrinking revenue in the third quarter at first glance seems to confirm the carmakers' unending problems. The French group reported a 3.4 percent drop in automotive revenue that sent its shares down 3 percent, even though the company is in better shape than the headline number suggests.

That is especially true when the auto maker is compared to loss-making French rival PSA Peugeot Citroen or to Italy's Fiat. Renault earned an operative margin of 2.9 percent in the first half of the year.

While lackluster in itself, measured by the standards of contemporary European mass-market manufacturers, this is not too bad. Renault's margin matches that of Volkswagen's non-premium brands. PSA and Fiat are still losing millions in Europe.

Renault did not release any earnings figures for the third quarter. Unit sales rose 3.1 percent and the company was even able to push through some price increases. It also confirmed its operative profit target for the year.

But a carmaker doesn't operate in a vacuum, and Renault found itself hit by factors beyond its control. The weakening of emerging market currencies wiped out 439 million euros - or 5.7 percent of revenue. Because of the economic sanctions against Iran, the group had to abandon the country, where it generated almost four percent of its unit sales last year.

Rising demand everywhere else made up for the loss. Unit sales in Europe jumped 10.2 percent - four times as fast as the entire market, which has been in the doldrums for more than four years.

Renault still faces important challenges. The lack of real premium models hinders its earning potential. Its greater exposure to emerging markets makes it vulnerable to their slowing growth prospects. The spike in European sales may just be a blip - and in any case, the recovery of Renault's home market is likely to be slow.

The carmaker's share price has risen 90 percent over the last year. According to Starmine data, it now trades at a forward price-earnings ratio of 7.5.

This is a tad higher than better-positioned Volkswagen. Even if nothing else goes wrong, further upward potential appears limited.

Renault's shares lost 3 percent on Oct. 25 after the French carmaker announced a 3.4 percent decline in third quarter revenue. Unit sales were up 3.1 percent but adverse currency effects led to lower revenue. - The carmaker said it is on track to meet its 2013 targets of higher unit sales than in 2012. - In its automotive unit, it eyes a positive operating margin and a positive operational free cash flow. - Reuters: Renault sales fall as forex overcomes pricing gains