Electrification And Hybrid Drivetrains Will Drive A Stronger Outlook Over The Next Years

Catalysts

About Feintool International Holding

Feintool International Holding is a global leader in fineblanking, forming and e-lamination technologies for high precision automotive and industrial components.

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

• Acceleration of hybrid drivetrain programs in North America, supported by recent capacity expansions and new 1,600 ton press commissioning, positions Feintool to convert strong order momentum into higher volumes and revenue growth with improving operating leverage.
• Expansion of e-stamping and electric motor core capabilities in China, evidenced by the CHF 30 million lifetime commercial vehicle order, provides a scalable entry into local EV platforms and is expected to lift margins as the product mix shifts toward higher value components.
• Greenfield entry into India, combined with interest from Japanese OEMs seeking localized drivetrain and transmission sourcing, creates a multi year pipeline of new programs that may drive growth in regional sales and group earnings once the plant ramps after 2026.
• Completion of restructuring and footprint optimization in Europe by 2027, including relocation of high volume fineblanking to lower cost Czech facilities, is intended to reduce fixed costs and raise EBIT margins even on moderate sales recovery.
• The dual strategy across ICE, hybrid and BEV applications, supported by a local to local production model in three major regions, is designed to enhance resilience to drivetrain shifts and geopolitical risks and to support more stable cash flows and margin expansion over the medium term.

Assumptions

This narrative explores a more optimistic perspective on Feintool International Holding compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Feintool International Holding's revenue will grow by 12.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -7.0% today to 7.4% in 3 years time.
• The bullish analysts expect earnings to reach CHF 69.8 million (and earnings per share of CHF 4.74) by about December 2028, up from CHF -46.5 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as CHF6.6 million.
• 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 4.6x on those 2028 earnings, up from -3.2x today. This future PE is lower than the current PE for the GB Auto Components industry at 18.1x.
• The bullish analysts expect the number of shares outstanding to decline by 0.41% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.2%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The prolonged weakness of the European automotive market, combined with cancelled e-stamping programs and still subdued industrial demand in Germany, could mean that restructuring in Europe fails to restore volumes to prior levels, placing sustained pressure on group revenue and EBIT.
• The strategic bet on electrification and e-stamping may underdeliver if BEV adoption continues to slow or if pricing pressure and a volume war in China persist. This would limit the growth and profitability of high value electric motor components and constrain net margins.
• The heavy upfront investments in new capacity in North America and the greenfield plant in India, together with rising net debt and delayed program ramp ups, could lead to a long payback period. This would weigh on free cash flow and depress earnings if expected volumes do not materialize quickly.
• Reliance on major OEM programs, illustrated by the early cancellation of an entire vehicle line in Europe, exposes Feintool to program specific risk that can rapidly remove large revenue streams and force unplanned restructuring charges. This could drive volatility in revenue and net income.

Valuation

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

• The assumed bullish price target for Feintool International Holding is CHF18.0, which represents up to two standard deviations above the consensus price target of CHF14.0. This valuation is based on what can be assumed as the expectations of Feintool International Holding'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 CHF18.0, and the most bearish reporting a price target of just CHF10.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be CHF938.3 million, earnings will come to CHF69.8 million, and it would be trading on a PE ratio of 4.6x, assuming you use a discount rate of 7.2%.
  
• Given the current share price of CHF10.15, the analyst price target of CHF18.0 is 43.6% 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.