Greentec Steel And Global Railway Expansion Will Drive Growth And Boost Net Margins

Key Takeaways

• Restructuring efforts and overhauls in underperforming sectors are expected to enhance operational efficiency and improve margins.
  
• Strategic geographic and sectoral diversification, including in rail systems and decarbonization initiatives, aims to stabilize revenues and boost growth.
  
• Voestalpine faces revenue pressures from a weakening European market, structural challenges, and higher costs, impacting future profitability and diversification efforts.

Catalysts

Processes, develops, manufactures, and sells steel products in Austria, the European Union, and internationally.

• The sale and restructuring of underperforming business units like Buderus Edelstahl and the reorganization of the automotive components sector in Germany are expected to enhance operational efficiency and improve EBITDA, directly impacting net margins.
  
• The expansion of Voestalpine's Railway Systems division, including strategic international projects and acquisitions, such as those in the U.S., Egypt, and Hong Kong, is anticipated to drive revenue growth, especially in markets outside Europe.
  
• Voestalpine's decarbonization project, Greentec Steel, is on schedule and budget, with significant planned reductions in CO2. This initiative could result in cost savings related to carbon compliance and position the company competitively, potentially improving both net margins and long-term earnings.
  
• The issuance of a green bond enhances liquidity and indicates a strategic financial move towards sustainable projects, potentially reducing borrowing costs in the long term and positively impacting net margins.
  
• A strategic focus on geographic diversification, particularly in North America markets, aims to stabilize and grow revenues, reducing reliance on weaker European markets and mitigating earnings volatility.

Voestalpine Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Voestalpine's revenue will decrease by 0.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.0% today to 5.1% in 3 years time.
• Analysts expect earnings to reach €830.6 million (and earnings per share of €3.2) by about January 2028, up from €7.9 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.8x on those 2028 earnings, down from 397.8x today. This future PE is lower than the current PE for the GB Metals and Mining industry at 15.0x.
• Analysts expect the number of shares outstanding to grow by 14.78% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.9%, as per the Simply Wall St company report.

Voestalpine Future Earnings Per Share Growth

Risks

• Voestalpine faces a challenging European market environment with a weaker economic outlook, especially in the automotive sector, which may negatively impact future revenues and profit margins.
  
• The divestment of the Buderus Edelstahl plant reflects structural pressures and resulted in significant one-time costs, which may continue to affect net margins until the restructuring process is complete.
  
• The company anticipates negative impacts from lower volumes and pricing pressure across its divisions, including Steel, High Performance Metals, and Metal Forming, potentially leading to reduced revenues and earnings.
  
• The slowdown in the European Oil & Gas sector and challenging conditions in Brazil could affect revenue streams from these regions, impacting overall revenue and international diversification efforts.
  
• The transition to EAF and decarbonization efforts involve adapting to higher electricity costs compared to other regions, which could increase operational expenditures and pressure net earnings.

Valuation

• The analysts have a consensus price target of €24.42 for Voestalpine based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €36.0, and the most bearish reporting a price target of just €13.6.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €16.3 billion, earnings will come to €830.6 million, and it would be trading on a PE ratio of 9.8x, assuming you use a discount rate of 8.9%.
• Given the current share price of €18.33, the analyst's price target of €24.42 is 24.9% higher.
• 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.