Transformation Program Will Deliver Significant Cost Savings And Operational Efficiencies

Key Takeaways

• Dormakaba's transformation program and operational efficiencies are likely to enhance net margins and drive progress toward midterm EBITDA goals.
  
• Strategic divestments, M&A activities, and innovation investments aim to consolidate market position and boost revenue through profitable segments and high-value products.
  
• Geopolitical tensions and reliance on refurbishment could affect dormakaba's pricing, revenue, and margin targets amidst divestments and operational duplications.

Catalysts

Provides access and security solutions worldwide.

• Dormakaba is successfully executing its transformation program, which is expected to deliver significant cost savings and operational efficiencies. This should enhance net margins and contribute toward reaching the midterm EBITDA target of 16% to 18%.
  
• The company is pursuing strategic divestments and M&A activities, aimed at consolidating its position in core markets and improving margin profiles. This approach is expected to impact revenue positively as it allows the company to focus on more profitable segments.
  
• Dormakaba’s commitment to investing in innovation and product development, as demonstrated by its activities at the BAU fair, is likely to drive future growth and revenue increases, particularly through new high-value products.
  
• With ongoing efforts to reduce product complexity and streamline operations, Dormakaba is expected to generate further efficiency gains that can improve net margins and earnings.
  
• The expansion of shared service centers and consolidation of operations are creating opportunities for cost reductions and improved financial performance. This should positively impact net margins and free cash flows moving forward.

dormakaba Holding Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming dormakaba Holding's revenue will grow by 4.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.3% today to 5.4% in 3 years time.
• Analysts expect earnings to reach CHF 174.7 million (and earnings per share of CHF 35.88) by about March 2028, up from CHF 67.7 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.3x on those 2028 earnings, down from 43.3x today. This future PE is lower than the current PE for the GB Building industry at 45.2x.
• Analysts expect the number of shares outstanding to grow by 0.21% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.79%, as per the Simply Wall St company report.

dormakaba Holding Future Earnings Per Share Growth

Risks

• The ongoing geopolitical tensions and potential U.S. tariffs on key raw materials like steel and aluminum could affect dormakaba's pricing strategy and cost structure, impacting margins and revenue.
  
• The operational impact of shared service centers, including ongoing work-shadowing and duplication of efforts, could dilute margins in the short term, potentially affecting net earnings.
  
• The recent divestments in U.K., South Africa, and Kuwait, if not managed well, might lead to revenue loss or inefficiency in market service, thus impacting future revenue and profitability.
  
• The company's dependence on refurbishment rather than new construction could lead to variability in sales, as the 60% refurbishment might not always match or exceed the value added by new constructions.
  
• The transformation costs and reliance on achieving the target of significant margin improvements amidst a volatile macro environment and competition could pose risks to achieving the midterm EBITDA targets, directly affecting net margins and earnings.

Valuation

• The analysts have a consensus price target of CHF711.875 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 CHF862.0, 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 CHF3.2 billion, earnings will come to CHF174.7 million, and it would be trading on a PE ratio of 19.3x, assuming you use a discount rate of 5.8%.
• Given the current share price of CHF700.0, the analyst price target of CHF711.88 is 1.7% 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.