Fleet Renewal In Europe And North America Will Unlock Value

Key Takeaways

• Pent-up demand from delayed fleet renewals and strong aftermarket business stabilize revenue, while European defense contracts add new growth avenues.
  
• Strategic investments in automation, new facilities, and premium products are expected to improve margins and drive future earnings recovery.
  
• Trade policy uncertainty, currency pressures, elevated debt, aftermarket dependence, and OEM customer concentration heighten financial risks and threaten stable earnings growth for SAF-Holland.

Catalysts

Manufactures and sells chassis-related assemblies and components for trailers, trucks, semi-trailers, and buses.

• The company is positioned to benefit from a coming rebound in truck and trailer fleet renewal cycles, particularly in Europe and North America, as fleet operators are postponing necessary investments due to extreme tariff and trade policy uncertainty; once visibility returns, pent-up demand is expected to drive a recovery in revenue and earnings.
  
• Orders in the EMEA region are already seeing significant momentum, with European production booked at full capacity into October, and ramping infrastructure and defense investments in Europe (e.g., military swivel axle contracts) providing new long-term growth vectors for the top line and improved margin mix.
  
• Secular growth in e-commerce and logistics is increasing the need for freight transport, which underpins a steady baseline for aftermarket components and services-a resilient, high-margin business segment that stabilizes cash flow and supports net margins even during OE downturns.
  
• The company's investments in automation, regional diversification (new plants in Turkey and Texas), and premium product innovation (such as air disc brakes gaining traction with U.S. OEM certification) are setting the stage for future net margin improvement through higher efficiency, entry into new adjacencies, and premiumization.
  
• Management expects most of the extraordinary tariff-related costs to be passed through to customers with a lag, and FX mitigation strategies are being implemented; as these pressures abate and one-off costs normalize, net earnings and free cash flow should improve, closing the gap in current undervaluation.

SAF-Holland Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SAF-Holland's revenue will grow by 6.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.9% today to 5.4% in 3 years time.
• Analysts expect earnings to reach €114.0 million (and earnings per share of €2.09) by about August 2028, up from €51.1 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 10.9x on those 2028 earnings, down from 13.9x today. This future PE is lower than the current PE for the GB Auto Components industry at 13.5x.
• Analysts expect the number of shares outstanding to grow by 0.8% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.79%, as per the Simply Wall St company report.

SAF-Holland Future Earnings Per Share Growth

Risks

• Persistent market uncertainty due to unpredictable U.S. trade and tariff policies is causing significant investment hesitation and suppressed demand among North American and Asian fleet operators, undermining revenue visibility and increasing volatility in earnings.
  
• Negative foreign exchange rate effects, particularly from a weaker U.S. dollar, are eroding reported profits and could continue to pressure net margins if currency volatility persists or mitigation strategies fail to fully offset these impacts.
  
• The company's increased financial leverage (net debt-to-EBITDA of 2.4x) driven by acquisition costs, lease liabilities, and lower earnings raises long-term balance sheet risk and could constrain future investment or profitability if earnings recovery is delayed.
  
• Heavy reliance on aftermarket sales to stabilize performance in key regions (notably Americas) exposes SAF-Holland to risk if spare parts demand weakens or customers delay fleet renewals, affecting both top-line and gross margin sustainability.
  
• SAF-Holland remains vulnerable to OEM customers' procurement strategies, as ongoing integration of acquisitions and exposure to customer concentration risks, coupled with possible supply chain/vertical integration trends among major manufacturers, could pressure future revenues and earnings growth.

Valuation

• The analysts have a consensus price target of €21.52 for SAF-Holland 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 €28.0, and the most bearish reporting a price target of just €16.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €2.1 billion, earnings will come to €114.0 million, and it would be trading on a PE ratio of 10.9x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of €15.68, the analyst price target of €21.52 is 27.1% 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.