Shape4Growth Will Streamline Operations And Meet Demand For Sustainable Solutions

Key Takeaways

• Shape4Growth program aims to improve margins and earnings through cost savings and operational efficiencies.
  
• Growth in North America targets hardware and automation, supported by M&A and sustainability initiatives for market expansion.
  
• Dormakaba faces challenges with currency impacts, M&A risks, internal complexity, and North American market position, potentially affecting growth and diversification.

Catalysts

Provides access and security solutions worldwide.

• Dormakaba is implementing a transformation program called Shape4Growth, which aims to deliver significant cost savings, operational efficiencies, and commercial advancements. This program is expected to positively impact net margins and earnings.
  
• The company is focusing on reducing complexity by streamlining its product portfolio and consolidating its supplier base, which should lead to efficiency improvements and margin enhancement.
  
• Dormakaba sees growth potential in North America, where it aims to close the gap with competitors by focusing on hardware and automation, potentially driving revenue growth.
  
• The company plans to leverage its strong balance sheet for accretive M&A to complement organic growth, which could enhance overall earnings and market share.
  
• Dormakaba's emphasis on sustainability initiatives and innovation, including new product features and digital solutions, could help drive future revenue growth by meeting increasing market demand for sustainable and efficient access solutions.

dormakaba Holding Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming dormakaba Holding's revenue will grow by 3.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.5% today to 4.6% in 3 years time.
• Analysts expect earnings to reach CHF 144.1 million (and earnings per share of CHF 35.0) by about February 2028, up from CHF 42.2 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CHF162.9 million in earnings, and the most bearish expecting CHF124 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.9x on those 2028 earnings, down from 65.9x today. This future PE is lower than the current PE for the GB Building industry at 25.9x.
• Analysts expect the number of shares outstanding to decline by 0.7% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.46%, as per the Simply Wall St company report.

dormakaba Holding Future Earnings Per Share Growth

Risks

• The appreciation of the Swiss franc against major currencies led to a negative currency translation effect, impacting dormakaba's reported revenue growth adversely.
  
• Concerns about dormakaba's past M&A activity, which includes acquisitions that have not created value, highlight risks related to uncertainty in future business integration and profitability.
  
• Residential market expansion is uncertain, with Till Reuter indicating caution and emphasizing dormakaba’s commercial market focus, possibly limiting potential revenue diversification.
  
• There is a need to reduce internal complexity, including streamlining product portfolios and supply chains, which if not executed well, could incur unexpected costs and disrupt operating margins.
  
• Challenges remain in the North American market, where dormakaba holds a distant #3 position, and previous M&A activities were not efficient, potentially affecting sales growth and market share retention ambitions.

Valuation

• The analysts have a consensus price target of CHF702.0 for dormakaba Holding 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 CHF813.0, and the most bearish reporting a price target of just CHF630.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CHF3.1 billion, earnings will come to CHF144.1 million, and it would be trading on a PE ratio of 22.9x, assuming you use a discount rate of 5.5%.
  
• Given the current share price of CHF664.0, the analyst price target of CHF702.0 is 5.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.