Rising Regulatory Demands And Raw Material Costs Will Erode Margins

Key Takeaways

• Dependence on major clients and lack of product diversification increase vulnerability to shifts in aerospace demand and innovation trends.
  
• Mounting regulatory, geopolitical, and inflationary pressures threaten long-term profitability and global operational stability.
  
• Strong order book, extended key contracts, operational efficiencies, and expansion into advanced aviation segments are driving stable growth and positioning FACC for long-term industry leadership.

Catalysts

Engages in the development, production, and maintenance of aircraft components worldwide.

• Intensifying global regulatory demands on carbon emissions are likely to force FACC into major, ongoing investments to remain compliant, driving up operating costs and severely pressuring net margins over the long term, especially as more sustainable aerospace supply chains become mandatory.
  
• Rising geopolitical instability, protectionism, and a worldwide trend toward regionalized manufacturing threaten to disrupt FACC's broad-based international operations and access to emerging markets, which could ultimately diminish both future revenue growth and profitability.
  
• FACC's business model remains highly exposed to a concentrated group of major OEM clients such as Airbus and Boeing, so any reduction in orders, platform realignment, or loss of supply contracts could abruptly undermine its revenue base and earnings visibility-particularly if aerospace order growth plateaus or reverses.
  
• Persistent inflationary pressures in raw material costs, especially for alloys and specialty fasteners, combined with limited ability to pass these increased expenses on to large customers, may leave FACC facing sustained margin erosion through 2025 and beyond, with only partial relief promised in future contract negotiations.
  
• Accelerating automation and digitalization across the aerospace industry favor competitors with deeper pockets for technology investment, and FACC's failure to meaningfully differentiate into next-generation, higher-margin components (such as for electric, hybrid, or eVTOL aircraft) places its long-term earnings growth and market share at considerable risk.

FACC Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on FACC compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming FACC's revenue will grow by 7.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 0.4% today to 4.1% in 3 years time.
• The bearish analysts expect earnings to reach €46.6 million (and earnings per share of €1.02) by about August 2028, up from €3.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 9.1x on those 2028 earnings, down from 99.7x today. This future PE is lower than the current PE for the GB Aerospace & Defense industry at 99.0x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.37%, as per the Simply Wall St company report.

FACC Future Earnings Per Share Growth

Risks

• FACC's order book hit an all-time high of over 6 billion euros and the company confirmed double-digit revenue growth with guidance for further growth, indicating strong revenue visibility and potential for sustained top-line expansion.
  
• Global air travel is continuing its recovery post-pandemic, with record-high passenger numbers and seat utilization, which is bolstering commercial aircraft demand and thereby supporting FACC's future revenues.
  
• FACC successfully extended major long-term contracts with industry leaders such as Rolls-Royce and Tata, increasing revenue stability and visibility from multi-hundred million euro supply agreements, which supports predictable earnings and reduces revenue concentration risk.
  
• The company's core initiatives-cost down, organizational streamlining, return on capital, and efficiency-are already showing early results with reduced inventories, improving free cash flow, and stable headcount despite revenue growth, which should lead to improved net margins going forward.
  
• Expansion in next-generation segments like Urban Air Mobility and logistics drones is moving into serial production, providing FACC with new high-growth revenue streams and positioning the company to benefit from secular industry shifts toward advanced composite solutions, supporting longer-term earnings growth.

Valuation

• The assumed bearish price target for FACC is €7.4, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of FACC's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €12.0, and the most bearish reporting a price target of just €7.4.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €1.1 billion, earnings will come to €46.6 million, and it would be trading on a PE ratio of 9.1x, assuming you use a discount rate of 8.4%.
  
• Given the current share price of €7.11, the bearish analyst price target of €7.4 is 3.9% higher. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.