Explosion Protection Demand And Cost Cuts Are Expected To Drive Stronger Earnings Ahead

Catalysts

About R. STAHL

R. STAHL provides explosion protection and safety technology for demanding industrial applications worldwide.

What are the underlying business or industry changes driving this perspective?

• Execution of the structural personnel program, additional working hour reductions, and tight expense control should structurally lower the cost base as demand normalizes, supporting higher EBITDA margins and stronger net profit conversion.
• Completion and delivery of large projects already in inventory in late 2025 and early 2026 is expected to unlock tied up working capital, lifting operating cash flow and helping to stabilize free cash flow and net debt metrics.
• Persistently high safety and reliability requirements in energy infrastructure, with LNG highlighted as a resilient end market, should underpin medium term demand for explosion protection systems and support a rebound in group revenues once investment cycles resume.
• The longer term shift toward more complex, automated chemical and pharmaceutical facilities globally implies rising needs for specialized hazardous area equipment. This positions R. STAHL to capture higher value projects and support gross margin resilience.
• R. STAHL typically reacts late in the investment cycle. Any macro and industrial recovery in 2026 and beyond would likely feed into its order books with a time lag, creating operating leverage on the leaner cost base and potentially leading to faster earnings growth than topline growth.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming R. STAHL's revenue will grow by 5.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from -1.3% today to 7.0% in 3 years time.
• Analysts expect earnings to reach €26.2 million (and earnings per share of €4.08) by about December 2028, up from €-4.2 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €32.0 million in earnings, and the most bearish expecting €19.5 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 7.5x on those 2028 earnings, up from -23.4x today. This future PE is lower than the current PE for the GB Machinery industry at 21.7x.
• 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 7.76%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• A prolonged downturn in key end markets such as European chemicals, global pharmaceuticals and North American oil and gas could keep order intake at the current low level or worse. This would cap revenue growth and undermine the assumption of a sustained top line recovery.
• If political and trade uncertainties, including high tax burdens on pharmaceutical exports from regions like India to North America, persist or intensify, investment in new facilities and equipment may remain depressed. This would limit demand for explosion protection systems and pressure earnings.
• Structural cost cutting that goes beyond the current headcount reductions and working hour cuts could erode technical expertise and service capability over time. This would make it harder to win complex projects and could weigh on gross margins and net profit.
• R. STAHL’s late cycle positioning means that even if industrial sentiment improves in 2026, there could be a long lag before it translates into orders. This may delay the planned improvement in free cash flow and constrain deleveraging of the rising net debt.
• Should large projects currently in inventories be delayed, repriced or cancelled in a weaker macro environment, the expected working capital release may not materialize. This would put further pressure on operating cash flow and limit the company’s ability to fund growth without stressing the balance sheet.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of €24.5 for R. STAHL based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be €374.7 million, earnings will come to €26.2 million, and it would be trading on a PE ratio of 7.5x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of €15.3, the analyst price target of €24.5 is 37.6% 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.