Digital Leasing And Cloud Adoption Will Unlock Expansive European Opportunities

Key Takeaways

• Persistent high-margin growth, rapid digitalization, and expanding market share could drive significantly stronger earnings and efficiency than analysts currently anticipate.
  
• Grenke's digital integration and broadening geographic footprint position it for long-term gains from structural shifts toward leasing and SME growth across Europe.
  
• Outdated digital strategy, limited diversification, and exposure to governance concerns undermine Grenke's resilience amid fintech disruption, economic headwinds, and shrinking demand for traditional leasing.

Catalysts

Provides financial services to small and medium-sized (SME) enterprises in Germany, France, Italy, and internationally.

• While analysts broadly agree Grenke's leasing new business growth above €3 billion is strong, they may be underestimating the compounding impact of high-margin expansion-Grenke is consistently achieving CM2 margins significantly above target, and if this persists amid market share gains, this could drive outsized revenue and net margin acceleration in coming years.
  
• Analyst consensus sees cost control and digitalization leading to gradual margin improvement, but Grenke's rapid digital adoption-from cloud migration to the automation of regulatory workflows-suggests a step-change in efficiency, setting the stage for a structural reduction in the cost-income ratio and a faster lift in earnings.
  
• The surge in digitalization of equipment procurement, combined with Grenke's 'leasing as easy as online shopping' initiatives and integration with web shops, positions the company to disproportionately benefit as businesses increasingly favor usage over ownership, substantially expanding Grenke's addressable market and long-term top-line growth.
  
• Grenke's embedded value per share indicates the market is not recognizing the true value of the current lease portfolio; as new business booked at record-high margins matures and is realized in net interest income, underlying earnings power and return on equity are set to surprise materially to the upside.
  
• Structural SME creation and entrepreneurship across Europe, particularly in emerging economies, provides a persistent tailwind, and with Grenke's ongoing geographic expansion, recurring revenue and high-quality earnings from a diversified base are likely to exceed market expectations.

Grenke Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Grenke compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Grenke's revenue will grow by 15.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 9.1% today to 19.5% in 3 years time.
• The bullish analysts expect earnings to reach €180.9 million (and earnings per share of €3.89) by about July 2028, up from €54.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 8.8x on those 2028 earnings, down from 14.9x today. This future PE is lower than the current PE for the GB Diversified Financial industry at 11.7x.
• Analysts expect the number of shares outstanding to decline by 2.87% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.93%, as per the Simply Wall St company report.

Grenke Future Earnings Per Share Growth

Risks

• Grenke's slow digital transformation and reliance on traditional channels leaves it vulnerable to embedded finance and fintech disruptors, which could erode market share and put downward pressure on margins, thereby negatively affecting long-term revenue and earnings growth.
  
• Persistently high default rates, particularly in core European markets facing recessionary pressures, may indicate that risk provisioning could remain elevated or even rise further, potentially compressing net margins and limiting earnings stability.
  
• The company's restricted geographic and product diversification, with most growth concentrated in regions like Germany, Austria, and Switzerland, exposes Grenke to regional macroeconomic downturns, increasing the risk of revenue volatility and constraining long-term top-line growth.
  
• Sustained legacy concerns about governance and past regulatory scrutiny may cause Grenke to face a higher cost of capital and lower valuation multiples, reducing returns on equity and weighing on earnings even if operational performance improves.
  
• Ongoing industry shifts away from leasing of traditional hardware, as businesses adopt cloud-based and remote solutions, could shrink Grenke's core addressable market, directly exerting pressure on future revenue growth and jeopardizing the scalability of its business model.

Valuation

• The assumed bullish price target for Grenke is €30.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Grenke's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €30.0, and the most bearish reporting a price target of just €14.5.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be €925.9 million, earnings will come to €180.9 million, and it would be trading on a PE ratio of 8.8x, assuming you use a discount rate of 9.9%.
  
• Given the current share price of €18.38, the bullish analyst price target of €30.0 is 38.7% 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.