Digital Solutions And Recurring Models Will Strengthen Market Position

Key Takeaways

• Growth driven by increased order backlog, product innovation in recurring consumables, and expanded digital solutions is expected to boost recurring revenues and margin stability.
  
• Operational efficiency initiatives and successful contract renegotiations will support cost reduction, profit margin improvement, and segment revenue rebound.
  
• Heavy dependence on large customers, delayed margin gains, and volatile consumables growth expose the company to regional risks, heightened competition, and regulatory uncertainty.

Catalysts

Provides solutions for car wash in Germany, Europe, North America, and the Asia Pacific.

• Strong order intake and a 21% year-to-date increase in order backlog across all regions point to sustained top-line growth in the coming quarters, indicating improving revenue visibility and growth momentum.
  
• Expansion and product innovation in recurring consumables and service offerings, including new products like MagicCare and support for bundling, are increasing the ratio of recurring revenues (now at 50% vs. 48% last year), which is likely to drive higher net margins and earnings stability.
  
• The shift toward digital, connected car wash solutions (e.g., the SmartCare Connect launch and field service software upgrades) aligns with rising industry automation and digitalization, supporting a long-term move to premium, higher-margin product lines and future recurring software/service revenues.
  
• Successful renegotiation of key account contracts in North America, resulting in higher multi-year volume than previous frameworks, alongside new tunnel orders, supports expectations for a rebound in segment revenue and margin improvement, particularly as equipment sales return.
  
• Increasing focus on operational efficiencies and ongoing footprint optimization (including logistics and service network upgrades) are likely to reduce costs and enhance profitability, supporting outperformance of EBIT growth relative to revenue and boosting free cash flow.

WashTec Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming WashTec's revenue will grow by 4.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.5% today to 8.3% in 3 years time.
• Analysts expect earnings to reach €46.8 million (and earnings per share of €3.27) by about August 2028, up from €31.6 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €38 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.8x on those 2028 earnings, up from 16.9x today. This future PE is lower than the current PE for the GB Machinery industry at 20.1x.
• 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 6.11%, as per the Simply Wall St company report.

WashTec Future Earnings Per Share Growth

Risks

• North American operations remain a risk, as revenues in the region dropped significantly by 15% in the first half of the year due to prolonged contract negotiations with key accounts; continued dependence on a few customers and the inability to grow consumables in this market could put downward pressure on group revenues and EBIT margins if regional recovery stalls or competition intensifies.
  
• Margin improvement in Europe hinges on efficiency initiatives and new product launches, but increased hiring, higher IT and marketing expenses, and delayed realization of cost efficiencies may weigh on net margins and profitability if benefits from these investments are slower to materialize.
  
• The consumables business demonstrated strong growth in prior periods due to favorable weather and one-off customer onboarding events; reliance on such non-recurring factors introduces volatility, and normalization or adverse weather patterns could dampen recurring revenues, impacting earnings stability.
  
• The company's current guidance is explicitly dependent on the assumption that global trade conflicts and recent tariff discussions will not escalate in a way that substantially impacts car wash investment; increased uncertainty or adverse regulatory developments in Europe or North America could result in reduced investment and lower revenue growth.
  
• WashTec's North American business model lacks direct sales of its own consumables, limiting margin expansion compared to Europe and exposing the company to possible erosion of profitability if trends toward sustainability or changes in car wash industry consolidation patterns favor competitors with a broader or more integrated offering.

Valuation

• The analysts have a consensus price target of €53.75 for WashTec based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €564.9 million, earnings will come to €46.8 million, and it would be trading on a PE ratio of 17.8x, assuming you use a discount rate of 6.1%.
  
• Given the current share price of €40.0, the analyst price target of €53.75 is 25.6% 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.