Green Hydrogen And Green Steel Will Transform Industry Dynamics

Key Takeaways

• Thyssenkrupp's positioning in defense, green steel, and industrial hydrogen offers overlooked opportunities for accelerated revenue growth, margin improvement, and value realization.
  
• Strategic moves in restructuring, divestitures, and leveraging specialty steel and circular economy solutions can unlock capital and strengthen long-term competitive advantages.
  
• Prolonged weak demand, persistent restructuring costs, and mounting decarbonization risks threaten profitability, capital returns, and revenue growth across core and emerging segments.

Catalysts

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

• Analyst consensus sees value in the Marine Systems backlog and upcoming IPO, but this likely underestimates both the long-term acceleration driven by heightened defense spending across Europe and Asia, plus the step-change in public market valuation multiples once the segment is listed, potentially driving above-expected group revenue and asset value uplift.
  
• While analyst consensus recognizes progress in green steel and DRI investments, it does not fully capture thyssenkrupp's potential as a first mover in industrial-scale hydrogen and ammonia infrastructure, with pending regulatory clarity and customer decarbonization mandates likely to deliver a faster-than-expected rebound in Decarbon Technologies bookings, leading to material revenue and margin upside from premium contracts.
  
• Momentum towards a global infrastructure renewal-particularly in emerging markets-positions thyssenkrupp to accelerate sales growth and secure long-term, high-margin contracts for steel, capital equipment, and industrial systems, supporting structural revenue uplift beyond what is implied by current market multiples.
  
• The company's anticipated divestiture or further restructuring of Material Services, combined with possible appreciation of its hidden Elevator stake, offers significant latent value realization; any strategic action in these areas could unlock capital and boost both reported net income and returns on capital.
  
• As global industries rapidly shift toward electrification and closed-loop recycling, thyssenkrupp's vertical integration, specialty steel expertise, and circular economy offerings provide competitive advantages that are underappreciated, enabling sustained above-market margin improvement and earnings growth as industrial customers reorient supply chains for resilience and ESG needs.

thyssenkrupp Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on thyssenkrupp compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming thyssenkrupp's revenue will grow by 4.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -3.7% today to 4.3% in 3 years time.
• The bullish analysts expect earnings to reach €1.6 billion (and earnings per share of €2.62) 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 bullish analyst cohort, the company would need to trade at a PE ratio of 5.8x on those 2028 earnings, up from -5.2x today. This future PE is lower than the current PE for the GB Metals and Mining industry at 19.2x.
• 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 5.53%, as per the Simply Wall St company report.

thyssenkrupp Future Earnings Per Share Growth

Risks

• Thyssenkrupp's core steel and materials businesses are struggling with persistent soft demand, lower prices, and secular pressures, as shown by double-digit sales declines year-over-year and guidance cuts for both sales and adjusted EBIT in Steel Europe and Materials Services, threatening long-term topline revenue growth.
  
• Chronic restructuring-including 11,000 job cuts, ongoing portfolio reviews, and multi-segment transformation costs-continues to create significant and recurring outflows, leading to volatile earnings and likely ongoing pressure on net margins and net income for several years.
  
• The Decarbon Technologies segment, despite a touted future potential, currently faces stalled growth and weak order intake, indicated by a book-to-bill ratio of just 0.7x, suggesting a potential contraction in revenues and margin pressure unless there is a sharp market and regulatory demand uptick.
  
• Capital employed in Material Services remains high relative to its business cash flow and return on capital remains debatable, creating a risk of unsatisfactory returns and value destruction for shareholders in the long run.
  
• Steel Europe is highly exposed to risks from global decarbonization/CBAM policy shifts, underutilized production, and potential labor/pension liabilities, which-combined with new carbon taxes, rising input costs, and competition from alternative materials-pose major longer-term threats to both operating profits and net income.

Valuation

• The assumed bullish price target for thyssenkrupp is €13.0, which is the highest 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 bullish 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 bullish analysts, you'd need to believe that by 2028, revenues will be €37.7 billion, earnings will come to €1.6 billion, and it would be trading on a PE ratio of 5.8x, assuming you use a discount rate of 5.5%.
• Given the current share price of €10.32, the bullish analyst price target of €13.0 is 20.6% 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.