Brazil Infrastructure And Urbanization Will Drive Equipment Rentals

Key Takeaways

• Growing dominance in heavy equipment and successful integration of acquisitions position Mills for higher margin expansion, revenue visibility, and accelerated market reach.
  
• Asset-light solutions, digital innovation, and exposure to expanding sectors drive outsized recurring revenues, operational leverage, and multi-year growth potential.
  
• Vulnerability to competition, sector concentration, tightening credit, high fixed costs, and industry automation trends threaten margins, revenue stability, and long-term strategic positioning.

Catalysts

Operates as a machinery and equipment rental company in Brazil.

• While analyst consensus views long-term contracts and multiproduct platform expansion as sources of stability, they may understate the earnings upside if Mills leverages its growing dominance in heavy equipment and intralogistics-with long-term contracts already surpassing 50% of rental revenue, Mills is positioned to accelerate margin expansion and drive even higher revenue visibility, supporting stronger EPS growth.
  
• Analysts broadly agree on the value of disciplined capital allocation; however, the rapid and synergistic integration of acquisitions like NEXT Rental in high-growth regions could create a step change in scale efficiencies and market reach, unlocking faster-than-expected revenue growth and ROIC improvement.
  
• Mills' leadership in asset-light rental solutions positions it to outpace industry growth, as structural shifts in Brazilian construction and industrial sectors drive significantly higher equipment rental penetration, boosting recurring revenues and operational leverage.
  
• As infrastructure investment, urbanization, and industrialization intensify in Brazil, Mills' exposure to diverse growth verticals (construction, mining, forestry, logistics) through organic expansion and targeted M&A offers sustained multi-year revenue compounding well above GDP growth rates.
  
• Adoption of advanced digital fleet management and telematics not only increases asset utilization and lowers maintenance costs, but also differentiates Mills as an innovation leader, further expanding margins and supporting superior client retention and pricing power.

Mills Locação Serviços e Logística Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Mills Locação Serviços e Logística compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Mills Locação Serviços e Logística's revenue will grow by 19.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 17.6% today to 13.6% in 3 years time.
• The bullish analysts expect earnings to reach R$395.2 million (and earnings per share of R$1.88) by about August 2028, up from R$301.4 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 17.2x on those 2028 earnings, up from 9.1x today. This future PE is greater than the current PE for the BR Trade Distributors industry at 9.1x.
• Analysts expect the number of shares outstanding to decline by 3.48% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 21.6%, as per the Simply Wall St company report.

Mills Locação Serviços e Logística Future Earnings Per Share Growth

Risks

• Mills Locação Serviços e Logística faces rising competitive pressure from Chinese manufacturers, particularly in the light equipment and elevation platforms segment, which has resulted in lower prices for smaller equipment and may continue to squeeze revenue and net margins in coming years.
  
• The over-reliance on the Brazilian construction and infrastructure sector makes Mills vulnerable to slowdowns or delays in public works, and the company acknowledged recent delays in infrastructure project starts, which could negatively impact future revenue and cash flow predictability.
  
• Persistent high interest rates in Brazil and tighter credit conditions are already leading to increased provisions for doubtful accounts, particularly in short-term contracts, which could further erode net income and indicate rising credit risk among clients.
  
• Mills' asset-heavy business model with high fixed costs and large CapEx requirements, especially to update or expand its heavy and intralogistics fleets, increases operational leverage and risk, potentially leading to margin contraction if demand weakens or utilization falls due to economic or secular industry trends.
  
• The slow but ongoing shift toward automation, robotics, and digital equipment platforms in construction and industrial sectors may impact long-term demand for Mills' manual rental equipment, threatening both revenues and long-term strategic relevance in the industry.

Valuation

• The assumed bullish price target for Mills Locação Serviços e Logística is R$18.75, which represents two standard deviations above the consensus price target of R$13.59. This valuation is based on what can be assumed as the expectations of Mills Locação Serviços e Logística'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 R$19.0, and the most bearish reporting a price target of just R$10.6.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be R$2.9 billion, earnings will come to R$395.2 million, and it would be trading on a PE ratio of 17.2x, assuming you use a discount rate of 21.6%.
  
• Given the current share price of R$12.12, the bullish analyst price target of R$18.75 is 35.3% 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.