Rising Cost Burdens Will Depress Margins Despite Decarb Opportunities

Key Takeaways

• Decarbonization pressures, alternative materials, and persistent overcapacity threaten core steel demand, margins, and long-term viability against intensifying global competition.
  
• Poor restructuring execution and heavy legacy obligations restrict innovation, financial flexibility, and capacity to adapt or invest for future growth.
  
• Strategic restructuring, green technology focus, and strong financial flexibility position thyssenkrupp for long-term growth despite near-term market headwinds.

Catalysts

Operates as an industrial and technology company in Germany and internationally.

• Persistent global decarbonization efforts and stricter emissions regulations are driving up compliance and capital expenditure costs for heavy industry, while at the same time, advancements in alternative materials like composites and lightweight alloys are set to reduce long-term demand for thyssenkrupp's core steel offerings. This dual threat is likely to pressure both revenues and net margins sustainably over the next decade.
  
• Heightened geopolitical instability along with increased trade barriers and protectionist policies are forecast to disrupt thyssenkrupp's access to crucial export markets, especially in Europe and parts of Asia, severely restricting sales volumes and exposing the company to revenue volatility far beyond management's current guidance.
  
• Ongoing, unresolved structural overcapacity in the European steel market is expected to cause continued price weakness and margin compression for at least several years, and the intensifying competition from lower-cost Asian producers will further erode group earnings and threaten long-term viability of legacy operations.
  
• Repeated and persistent difficulties in executing restructuring plans-as evidenced by delayed implementation of the Steel Europe restructuring, slow portfolio optimization, and ambiguous capital allocation for spin-offs-are leaving the company with elevated cost structures and diminishing its ability to improve net margins or deliver sustainable earnings growth.
  
• Elevated pension obligations and legacy liabilities, combined with only modest progress on innovation and digital transformation initiatives, will continue to constrain free cash flow and undermine financial flexibility, reducing the company's ability to invest in future growth or withstand cyclical downturns.

thyssenkrupp Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on thyssenkrupp compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming thyssenkrupp's revenue will decrease by 0.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -3.7% today to 4.2% in 3 years time.
• The bearish analysts expect earnings to reach €1.4 billion (and earnings per share of €2.29) by about September 2028, up from €-1.2 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 3.2x on those 2028 earnings, up from -5.1x today. This future PE is lower than the current PE for the GB Metals and Mining industry at 19.6x.
• 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 5.55%, as per the Simply Wall St company report.

thyssenkrupp Future Earnings Per Share Growth

Risks

• Thyssenkrupp is progressing with the strategic spin-off and partial listing of Marine Systems, which boasts a record order backlog of €18.5 billion and new major contracts, suggesting the Marine division will be a long-term source of revenue growth and improved group earnings.
  
• The company's Decarbon Technologies and green transformation efforts, including the DRI plant at Duisburg and industrial-scale hydrogen partnerships, position thyssenkrupp to benefit from global demand for green steel and sustainable industrial solutions, which could lead to higher revenues and improved EBITDA margins over the long term.
  
• Despite current weak demand in steel and automotive, management emphasizes ongoing restructuring, cost-cutting (including over 4,200 FTE reductions), and operational efficiency through programs like APEX 2.0, which are showing early positive effects-these measures could stabilize or even increase net margins and free cash flow.
  
• Thyssenkrupp maintains a strong balance sheet with €3.7 billion in net cash and additional credit facilities, providing financial flexibility for investment and to weather market downturns, which reduces downside risk to earnings and supports long-term shareholder value.
  
• Management and analysts highlight a robust pipeline and eventual recovery in Decarbon and related green markets (such as hydrogen, ammonia, and wind), with the expectation that as regulatory clarity and interest rates improve, significant order growth is likely-this could drive a rebound in top-line growth and support valuation multiples in coming years.

Valuation

• The assumed bearish price target for thyssenkrupp is €6.3, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of thyssenkrupp's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €13.0, and the most bearish reporting a price target of just €6.3.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €33.9 billion, earnings will come to €1.4 billion, and it would be trading on a PE ratio of 3.2x, assuming you use a discount rate of 5.6%.
  
• Given the current share price of €10.2, the bearish analyst price target of €6.3 is 62.0% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• 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.