Diversification Into Automation And Clean Tech Will Offset European Automotive Weakness

Key Takeaways

• Aumann's focus on E-mobility and automation markets, alongside diversification into high-value technologies, positions it for enhanced revenue and margin growth.
  
• Expansion into non-automotive sectors and strategic M&As could provide stability against market fluctuations and drive profitability gains.
  
• Decline in order intake and backlog, reliance on large projects, and slow diversification raise concerns about Aumann's future revenue and profitability.

Catalysts

Manufactures and sells specialized machines and production lines for components of electric and classic drive chain systems in Europe, the United States, Canada, Mexico, China, and internationally.

• Aumann's strategic focus on the rapidly growing E-mobility and automation markets, driven by increased demand for operational efficiency and global trends towards greener production, is expected to enhance revenue growth in these sectors.
  
• The expansion into new fields such as inverter assembly and electrode manufacturing, along with advanced technologies for battery and fuel cell systems, positions Aumann to capitalize on emerging market opportunities, potentially improving their net margins through diversification and higher-value offerings.
  
• The recently renamed Next Automation segment aims to capture growth outside the automotive sector in areas like clean tech, aerospace, and life sciences, which could bolster overall earnings and provide a buffer against automotive market fluctuations.
  
• Aumann's strong financial performance, characterized by significant revenue and EBITDA growth to date, suggests that its current capabilities and solid order backlog may continue to support further profitability improvements, despite temporary slowdowns in automotive investments.
  
• The possibility of strategic mergers and acquisitions to enhance market access, particularly in the United States, and to accelerate expansion in the Next Automation segment could drive scale and efficiency, boosting earnings potential and stock valuation.

Aumann Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Aumann's revenue will decrease by 1.5% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 5.6% today to 2.9% in 3 years time.
• Analysts expect earnings to reach €9.0 million (and earnings per share of €0.58) by about March 2028, down from €18.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.7x on those 2028 earnings, up from 9.6x today. This future PE is greater than the current PE for the GB Machinery industry at 17.7x.
• Analysts expect the number of shares outstanding to decline by 1.69% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.55%, as per the Simply Wall St company report.

Aumann Future Earnings Per Share Growth

Risks

• The European automotive market, a key sector for Aumann, is experiencing a decline in demand for electric vehicles, leading to a temporary slowdown in investments, which could negatively impact future revenue and order intake.
  
• The order intake for Aumann has declined by 37% year-over-year due to reluctance to invest, technical challenges, and high costs for OEMs, posing a risk to future revenue growth.
  
• With high dependence on large-scale projects, Aumann faces a high risk concentration, where losing or delaying such projects could adversely affect revenue and EBIT margins.
  
• Aumann’s order backlog has decreased by 28%, suggesting a potential decline in revenue in the coming year and raising concerns about maintaining profitability and positive cash flow.
  
• Despite diversification efforts, the newly positioned Next Automation segment has yet to demonstrate significant revenue generation, indicating potential risks in achieving expected revenue diversification outside of the automotive sector.

Valuation

• The analysts have a consensus price target of €13.4 for Aumann 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 €15.1, and the most bearish reporting a price target of just €10.6.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €310.9 million, earnings will come to €9.0 million, and it would be trading on a PE ratio of 22.7x, assuming you use a discount rate of 5.5%.
• Given the current share price of €12.04, the analyst price target of €13.4 is 10.1% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• 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.