Economic Uncertainty And Leadership Changes Will Hamper Prospects

Key Takeaways

• Stable revenue contributions are threatened by a slowdown in the automotive sector and economic uncertainties, affecting overall growth and EBITDA margins.
  
• Leadership transitions and limited international focus could hinder strategic agility and long-term earnings potential amidst market changes.
  
• Record growth in revenue and EBITDA, strong cash position, strategic investments, and diversification efforts support potential for sustained financial performance and investor confidence.

Catalysts

Engages in the acquisition and management of medium-sized companies primarily in the technology and engineering sectors in Germany and internationally.

• The expected stable revenue growth in 2025, despite positive contributions from segments like Friedrich Vorwerk and DTS, may be dampened by the anticipated decline in revenue for Aumann due to a slowdown in the automotive industry, which will potentially impact overall revenue stability negatively.
  
• Economic uncertainties and external factors, such as potential trade conflicts and the weakness in traditional German industries, create risks that could lead to a more conservative EBITDA margin range of 11% to 14%, introducing volatility in profit expectations.
  
• The transition of leadership roles, with the COO stepping down and a new CFO entering, could introduce strategic shifts or delays in capital allocation decisions, impacting net margins and earnings due to possible continuity challenges.
  
• The limited impact of existing investments from MBB and the focus on predominantly German markets, while potentially missing out on higher growth opportunities internationally, may restrict revenue growth and limit competitive positioning in rapidly changing industries.
  
• The use of cash for share buybacks instead of reinvesting in high-growth opportunities or M&A efforts may limit the ability to capitalize on market expansion or technological advancements, thereby potentially reducing long-term earnings growth prospects.

MBB Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming MBB's revenue will grow by 1.1% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 3.5% today to 3.4% in 3 years time.
• Analysts expect earnings to reach €37.6 million (and earnings per share of €6.92) by about April 2028, down from €37.7 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 18.3x on those 2028 earnings, down from 22.4x today. This future PE is lower than the current PE for the GB Industrials industry at 20.9x.
• Analysts expect the number of shares outstanding to decline by 3.72% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.11%, as per the Simply Wall St company report.

MBB Future Earnings Per Share Growth

Risks

• MBB reported record-breaking figures for Full Year 2024, achieving significant revenue and EBITDA growth across all business segments, which might sustain investor confidence and support a steady or rising share price due to improved revenue and earnings.
  
• The company has a robust net cash position, exceeding €550 million, and actively invests in its own shares and subsidiaries, positioning them to potentially implement strategic growth initiatives that could positively impact net margins.
  
• Friedrich Vorwerk showed smooth project execution and significant progress in important projects within the Service and Infrastructure segment, backed by a strong order book and consistent profitability, suggesting potential stable revenue streams.
  
• Aumann delivered record revenue in 2024 and is actively exploring growth outside the automotive industry in sectors like clean tech and aviation, indicating potential for revenue diversification and stability even in a challenging market.
  
• MBB’s ongoing focus on strategic share buybacks and enhanced dividend proposals suggest confidence in continued strong financial performance, potentially leading to positive investor sentiment and stable or growing earnings per share.

Valuation

• The analysts have a consensus price target of €148.0 for MBB 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 €200.0, and the most bearish reporting a price target of just €114.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €1.1 billion, earnings will come to €37.6 million, and it would be trading on a PE ratio of 18.3x, assuming you use a discount rate of 5.1%.
• Given the current share price of €156.0, the analyst price target of €148.0 is 5.4% lower. 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.