Long-Term Leasing And High CapEx Will Likely Pressure Margins And Earnings

Catalysts

About SIMPAR

SIMPAR is a Brazilian holding company that operates diversified service businesses across logistics, vehicle rental and leasing, infrastructure and automotive retail.

What are the underlying business or industry changes driving this perspective?

• The rapid expansion of long term truck, machinery and equipment leasing, combined with higher repossessions and a growing used asset inventory at VAMOS, raises the risk that demand for re leasing and resale of these assets falls short. This would pressure revenue growth and force margin dilutive asset sales, weighing on EBITDA and net income.
• The heavy reliance on capital intensive port concessions and ferry electrification projects exposes SIMPAR to execution delays, higher than planned CapEx and suboptimal contract repricing in a high rate environment. This could erode projected returns and keep consolidated ROIC below the cost of capital, limiting earnings growth.
• The strategy of extracting more value from an already built asset base while materially cutting net CapEx may collide with structurally rising maintenance needs and technology upgrades across logistics, mobility and dealership networks. This raises the risk of underinvestment that compresses service quality and ultimately constrains revenue and EBITDA expansion.
• The plan to bring AUTOMOB to full maturity only by late 2026 or 2027 after a period of impairments in agricultural machinery assumes a cyclical normalization of agribusiness and dealer profitability. If this does not occur, the segment may be left with structurally lower volumes and thinner net margins than the group’s current forecasts.
• Group deleveraging depends on continued operational gains and occasional asset monetization. However, persistently high interest rates and any slowdown in core businesses such as JSL logistics and Movida car rental would limit free cash flow generation, delay leverage reduction and keep financial expenses elevated relative to EBITDA and net earnings.

Assumptions

How have these above catalysts been quantified?

• This narrative explores a more pessimistic perspective on SIMPAR compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming SIMPAR's revenue will grow by 10.4% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -0.2% today to 2.9% in 3 years time.
• The bearish analysts expect earnings to reach R$1.7 billion (and earnings per share of R$2.91) by about August 2029, up from -R$74.2 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as R$2.6 billion.
• 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 4.4x on those 2029 earnings, up from -41.1x today. This future PE is lower than the current PE for the BR Transportation industry at 10.2x.
• The bearish 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 27.21%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• SIMPAR is demonstrating sustained operational efficiency gains and pricing power across its service businesses, with service revenue growing 8% year on year, EBITDA up 14% and EBITDA margins expanding by 2 percentage points, which could support structurally higher earnings and net margins over the long term.
• The group is entering a capital light phase after years of heavy investment, with net CapEx down 40% in the first nine months of 2025 and annualized EBITDA now 2.4 times CapEx. This increases cash generation capacity and could accelerate deleveraging and support higher equity valuations through improved earnings and lower interest expenses.
• Key subsidiaries are positioned in secular growth areas with visible scale and leadership. These include JSL with strong organic contract growth and the new INTRALOG unit, Movida with a young fleet and growing customer base, and VAMOS with resilient long term leasing demand and a scalable used asset ecosystem, which together could drive durable revenue growth and expanding group EBITDA over time.
• Infrastructure and concession assets at CS Infra and the ferry electrification project have long term contracted or highly visible revenues. Ports are expected to deliver about BRL 400 million in revenue and more than BRL 200 million in EBITDA next year, and the ferry contract is structured as a 20 year take or pay style arrangement, which could underpin stable cash flows and support higher consolidated earnings and return on invested capital.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for SIMPAR is R$8.5, which represents up to two standard deviations below the consensus price target of R$13.68. This valuation is based on what can be assumed as the expectations of SIMPAR'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 R$22.0, and the most bearish reporting a price target of just R$8.5.
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be R$59.4 billion, earnings will come to R$1.7 billion, and it would be trading on a PE ratio of 4.4x, assuming you use a discount rate of 27.2%.
• Given the current share price of R$7.14, the analyst price target of R$8.5 is 16.0% 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.