Accelerating EV Adoption And Circular Economy Will Spark Expansion

Key Takeaways

• Structural cost reductions and cultural transformation are set to drive lasting margin and earnings outperformance beyond what is currently anticipated.
  
• Industry-leading contracts, innovative recycling, and broad technological partnerships position Umicore for resilient, high-margin growth amid accelerating demand for sustainable materials.
  
• Industry shifts, rising competition, regulatory changes, strategic execution risks, and automotive market decline collectively threaten Umicore's profitability, margins, and capacity to generate sustainable returns.

Catalysts

Operates as a materials technology and recycling company in Belgium, Europe, the Asia-Pacific, North America, South America, and Africa.

• Analyst consensus sees efficiency measures and cost discipline boosting margins in the near term, but this likely underestimates the cumulative impact of group-wide restructuring, deep cultural transformation towards performance, and permanent SG&A/R&D reductions, which could structurally lift EBITDA margins and double-digit earnings growth beyond current expectations.
  
• While analysts broadly expect Umicore's disciplined capital allocation and CapEx cuts to gradually improve returns, the sharper-than-expected reduction-over one billion euro in cutbacks through 2028-combined with reallocated spending into state-of-the-art recycling in Hoboken, is set to produce a step-change in free cash flow and asset returns, potentially enabling earlier deleveraging and expanded shareholder distributions.
  
• Umicore's early securing of high-volume, multi-year, take-or-pay contracts with top global battery cell and automotive OEMs-including Stellantis, Volkswagen and SK On-gives it unrivalled earnings visibility and fixed revenue baselines for next several years, providing both upside to revenue forecasts and resilience against EV demand swings far beyond what peers or consensus models reflect.
  
• The group's unique, proprietary recycling and refining processes for battery metals and platinum group metals position it as a direct beneficiary of the accelerated global shift toward the circular economy, placing Umicore at the nexus of surging regulatory and corporate demand for closed-loop, sustainable materials-a dynamic that is poised to drive both volumes and high-margin revenue in recycling at an above-industry pace.
  
• Umicore's diversified geographic, customer, and material footprint-including leadership in 17 of the 34 EU critical raw materials and new strategic partnerships in solid-state and fuel cell technologies-creates optionality for early and outsized gains as the EV, hydrogen, and advanced battery markets mature, setting the stage for compound top-line growth and margin outperformance anchored in long-term megatrends.

Umicore Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Umicore compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Umicore's revenue will decrease by 43.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 0.8% today to 14.2% in 3 years time.
• The bullish analysts expect earnings to reach €419.1 million (and earnings per share of €1.58) by about August 2028, up from €128.8 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 bullish analyst cohort, the company would need to trade at a PE ratio of 14.1x on those 2028 earnings, down from 25.9x today. This future PE is lower than the current PE for the GB Chemicals industry at 25.9x.
• 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 8.31%, as per the Simply Wall St company report.

Umicore Future Earnings Per Share Growth

Risks

• Increasing shift in the battery industry toward chemistries with lower or zero cobalt content, such as LFP, is indicated by major customers like Stellantis and Volkswagen considering or adopting these alternatives, which poses a long-term threat to Umicore's higher-margin cobalt-based cathode materials business and could lead to structurally lower revenues and profitability.
  
• Wholesale overcapacity and intensified competition from Asian battery material suppliers, especially those based in China and South Korea, are likely to put continued pressure on Umicore's cathode and precursor materials pricing, potentially decreasing gross margins and eroding long-term earnings power.
  
• Legislative changes and a global push for localized battery recycling, coupled with more stringent circular economy requirements, could favor local competitors and result in profit margin compression for Umicore's recycling operations, squeezing EBITDA and limiting operating leverage.
  
• Umicore remains exposed to pronounced execution risk as it embarks on large capacity expansions and plant transitions (such as new battery material investments and restructured business segments), which could result in higher-than-expected capital expenditures or underutilization, thereby weighing on free cash flow generation and the return on invested capital.
  
• The ongoing decline in internal combustion engine markets poses a drag on group earnings, as the company's legacy automotive catalyst business exhibits stagnating or shrinking revenues and could drive further restructuring costs and asset impairments, with negative implications for consolidated net income.

Valuation

• The assumed bullish price target for Umicore is €19.42, which represents two standard deviations above the consensus price target of €14.02. This valuation is based on what can be assumed as the expectations of Umicore's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €21.0, and the most bearish reporting a price target of just €10.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be €2.9 billion, earnings will come to €419.1 million, and it would be trading on a PE ratio of 14.1x, assuming you use a discount rate of 8.3%.
  
• Given the current share price of €13.88, the bullish analyst price target of €19.42 is 28.5% 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.