Launching New Automotive Division And Clean Technology Emphasis Will Improve Efficiencies

Key Takeaways

• Strategic restructuring may streamline operations and enhance efficiency, positively impacting future EBIT margins and net margins through division consolidation.
  
• Emphasis on clean technology and service business growth aligns with industry trends, driving future revenue growth and financial resilience.
  
• Delays in projects and weaker demand in key segments may continue to negatively affect revenue and margins amid financial and market challenges.

Catalysts

Operates as a mechanical and plant engineering company worldwide.

• Dürr is focusing on the strategic merger of its Paint and Final Assembly Systems and Application Technology divisions into a new Automotive division, set to launch on January 1, 2025. This restructuring aims to streamline operations and may enhance efficiencies, positively impacting future EBIT margins.
  
• Dürr is witnessing strong momentum in its Clean Technology Systems, including promising large battery coating projects. Continued emphasis on clean technology aligns with broader industry trends and could drive future revenue growth.
  
• The company's high order intake, particularly in the automotive sector for medium to long-term projects, suggests potential for sustained revenue growth and improved cash flow, as clients invest in modernizing and replacing painting lines.
  
• Plans to reduce divisions from five to three reflect Dürr’s emphasis on core business areas and efficiency. This focus could contribute to enhanced net margins over time by streamlining operations and concentrating resources on higher-margin activities.
  
• Dürr's focus on growing its Service business, which represented 28.4% of total sales, can offer more stable revenue and stronger margins compared to traditional equipment sales. This shift may improve overall earnings and financial resilience.

Dürr Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Dürr's revenue will grow by 3.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.8% today to 3.5% in 3 years time.
• Analysts expect earnings to reach €186.7 million (and earnings per share of €2.69) by about February 2028, up from €84.8 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as €219.5 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.8x on those 2028 earnings, down from 20.3x today. This future PE is lower than the current PE for the GB Machinery industry at 16.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.1%, as per the Simply Wall St company report.

Dürr Future Earnings Per Share Growth

Risks

• An overall decline in net income by 24% over the first 9 months, impacted by higher PPA effect following the BBS Automation acquisition and higher interest costs, could negatively affect the earnings.
  
• Currency fluctuations leading to negative exchange rate effects have reduced order backlog, which may impact revenue stability and predictability.
  
• The higher tax rate of 35%, surpassing the standard assumption of 30%, is expected to remain elevated for the full year, thus affecting net margins.
  
• Sales were notably slowed by delays in automotive projects and weaker order intake in Industrial Automation Systems, which might impact revenue.
  
• The market weakness in HOMAG, particularly in the single machine segment, resulting in a 14% sales decline and impacting margins, could persist if demand does not recover as expected.

Valuation

• The analysts have a consensus price target of €30.409 for Dürr 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 €40.0, and the most bearish reporting a price target of just €22.5.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €5.3 billion, earnings will come to €186.7 million, and it would be trading on a PE ratio of 13.8x, assuming you use a discount rate of 7.1%.
  
• Given the current share price of €24.9, the analyst price target of €30.41 is 18.1% 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.