Expanding Electric Bus Offerings Will Strengthen Future Market Position

Key Takeaways

• Strategic focus on high-value electric and articulated buses and market expansion indicate potential revenue growth and improved net margins.
  
• Operational improvements and increased exports, especially with electric vehicle adaptations, enhance earnings and financial performance.
  
• Economic challenges and international market slowdowns threaten revenue, exacerbated by currency devaluation and rising interest rates impacting sales and financial health.

Catalysts

Engages in manufacture and sale of bus bodies in Brazil, Africa, Argentina, Australia, China, the United Arab Emirates, and Mexico.

• The growth in revenue by 30% in Q4 2024, driven by increased volumes in both the Brazilian and international markets, indicates potential for continued revenue growth as Marcopolo expands its market presence and demand for buses increases.
  
• The strategic focus on high-value vehicles like articulated and electric buses, along with anticipated recovery in urban bus demand in 2025, suggests potential for improved net margins through product mix enhancement and differentiation.
  
• The operational improvements and cultural transformation in international units, particularly in Mexico and South Africa, are expected to boost volumes and contribute positively to earnings, enhancing Marcopolo's overall financial performance.
  
• Expectations of stable production volumes in 2025, backed by a strong order book and initiatives to improve efficiency and productivity, could lead to better operational leverage, supporting margin expansion and earnings growth.
  
• The potential increase in exports, particularly to key markets such as Argentina and Mexico, along with the adaptation to electric vehicle offerings, signals opportunities for revenue diversification and growth, supporting overall earnings enhancement.

Marcopolo Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Marcopolo's revenue will grow by 9.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 14.0% today to 14.2% in 3 years time.
• Analysts expect earnings to reach R$1.6 billion (and earnings per share of R$1.53) by about March 2028, up from R$1.2 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.0x on those 2028 earnings, up from 6.4x today. This future PE is greater than the current PE for the BR Machinery industry at 7.8x.
• Analysts expect the number of shares outstanding to decline by 0.33% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 20.13%, as per the Simply Wall St company report.

Marcopolo Future Earnings Per Share Growth

Risks

• The Brazilian bus production growth rate is expected to slow down in 2025 compared to 2024, potentially affecting revenue growth and operational leverage.
  
• The slowdown in some international operations, such as Australia, might lead to reduced volumes in 2025, potentially impacting revenue streams from these regions.
  
• Negative impacts from currency exchange rate fluctuations, specifically due to the devaluation of the Brazilian real affecting dollar-denominated debt, could adversely affect net income.
  
• The company experienced a decrease in production for exports from Brazil, with a noted drop of 8.7%, which could negatively impact revenue generated from international markets.
  
• Rising interest rates may influence the company's order book and demand for its products, potentially leading to a decrease in future sales volume and affecting overall revenue growth.

Valuation

• The analysts have a consensus price target of R$10.862 for Marcopolo 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 R$12.0, and the most bearish reporting a price target of just R$10.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be R$11.4 billion, earnings will come to R$1.6 billion, and it would be trading on a PE ratio of 13.0x, assuming you use a discount rate of 20.1%.
• Given the current share price of R$6.84, the analyst price target of R$10.86 is 37.0% 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.