Acquisition Of Hyva Group Will Strengthen Portfolio And Expand Market Reach In Asia

Key Takeaways

• The acquisition of Hyva Group and expansion in Brazil strengthen JOST Werke's market position and drive revenue growth in new regions.
  
• Strategic investments in R&D and operational efficiencies improve profitability and support sustained growth with strong free cash flow.
  
• Declines in key markets and high fixed costs, combined with integration challenges, threaten JOST Werke's profitability and revenue growth.

Catalysts

Manufactures and supplies safety-critical systems for the commercial vehicle industry in Germany, Europe, North America, Asia, Pacific, and Africa.

• The acquisition of the Hyva Group, adding the global market leader for hydraulic tipping cylinders, is expected to enhance JOST Werke's portfolio and strengthen its market position, particularly in Asia where growth is anticipated to be robust. This should positively impact future revenue growth.
  
• Consolidation of sites in Michigan and China is expected to improve operational efficiencies and increase profitability, contributing to a potential enhancement in net margins.
  
• The expansion into the Brazilian market with the localization of front loaders and the integration of Crenlo do Brasil to serve global OEM agricultural customers is anticipated to drive revenue growth in new markets.
  
• Investing in R&D and accelerating the road map with partners like Trailer Dynamics and FERNRIDE is designed to support transformation in the transport and agricultural sectors, potentially leading to improvements in earnings through innovation and enhanced product offerings.
  
• Maintaining strong free cash flow and a low leverage ratio enables continued strategic investments and operational flexibility, which could support sustained earnings growth and potentially future shareholder returns.

JOST Werke Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming JOST Werke's revenue will grow by 18.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.2% today to 4.7% in 3 years time.
• Analysts expect earnings to reach €86.8 million (and earnings per share of €5.7) by about January 2028, up from €36.5 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 12.6x on those 2028 earnings, down from 18.8x today. This future PE is lower than the current PE for the GB Machinery industry at 16.6x.
• Analysts expect the number of shares outstanding to grow by 0.72% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.02%, as per the Simply Wall St company report.

JOST Werke Future Earnings Per Share Growth

Risks

• Weak market conditions in Europe and North America, with significant declines in truck and trailer markets, could continue to negatively impact JOST Werke's revenue and profitability.
  
• The company's performance is heavily influenced by cyclical industries like transport and agriculture, which are currently facing slow market recovery, potentially limiting revenue growth and earnings.
  
• High fixed costs relative to volumes are affecting profitability in European operations, which could further impact net margins if volumes do not recover as anticipated.
  
• The current business environment involves discussions with OEMs about price reductions due to lower material and energy costs, which could pressure revenues if JOST isn't able to maintain pricing power.
  
• Potential challenges with execution of future growth plans, including the integration of Hyva, could lead to unforeseen costs and inefficiencies, impacting net earnings and margins.

Valuation

• The analysts have a consensus price target of €60.94 for JOST Werke 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 €74.0, and the most bearish reporting a price target of just €48.7.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €1.9 billion, earnings will come to €86.8 million, and it would be trading on a PE ratio of 12.6x, assuming you use a discount rate of 6.0%.
• Given the current share price of €46.1, the analyst's price target of €60.94 is 24.4% 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.