Fenix Plan Will Improve Efficiency And Stabilize Earnings By 2026

Key Takeaways

• Gestamp is leveraging its significant revenue backlog to ensure steady income and support growth while enhancing profitability through strategic operations and financial discipline.
  
• The company's focus on EV opportunities in China and the Fenix operational restructuring plan are expected to enhance earnings and EBITDA margins.
  
• Volatile automotive market and underperformance in key regions threaten Gestamp's revenue, profitability, and net margins amid regulatory uncertainties and declining production volumes.

Catalysts

Designs, develops, manufactures, and sells metal automotive components in Western Europe, Eastern Europe, Mercosur, North America, and Asia.

• The Fenix plan is expected to stabilize poorly performing plants and raise EBITDA margins from 7% in 2024 to 8% in 2025, ultimately exceeding 10% by 2026, boosting overall earnings.
  
• Gestamp has a significant ongoing backlog worth €51.1 billion covering over 90% of expected revenues for the next five years, ensuring a steady income flow to support revenue growth.
  
• Continued focus on cost control measures, capacity reevaluation, and financial discipline is anticipated to enhance profitability, benefiting net margins and potentially supporting earnings growth.
  
• Gestamp's strategy to capitalize on EV market opportunities in China, where manufacturing is projected to grow by 2% in 2025, is expected to drive revenue increases.
  
• Strategic operations and restructuring, including in NAFTA under the Fenix plan, are likely to realign and enhance capability and efficiency, contributing to improved EBITDA margins and earnings stability.

Gestamp Automoción Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Gestamp Automoción's revenue will grow by 3.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.5% today to 2.6% in 3 years time.
• Analysts expect earnings to reach €351.0 million (and earnings per share of €0.58) by about March 2028, up from €188.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €489 million in earnings, and the most bearish expecting €264.3 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.9x on those 2028 earnings, down from 8.4x today. This future PE is lower than the current PE for the GB Auto Components industry at 8.4x.
• Analysts expect the number of shares outstanding to decline by 0.69% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.89%, as per the Simply Wall St company report.

Gestamp Automoción Future Earnings Per Share Growth

Risks

• The automotive market faced volatility and a lack of growth in 2024, with a decline in the total light vehicle manufacturing volumes. This challenging market environment could constrain Gestamp’s future revenue and earnings growth.
  
• There was a slower than projected EV production in crucial markets like NAFTA and Western Europe, which could impact Gestamp’s ability to increase its EV-related sales and affect revenue and profitability.
  
• Western Europe operations underperformed due to weak performance of specific products, contributing to a decline in leverage and profitability. This regional underperformance could impact overall net margins.
  
• The volatility and potential decrease in international auto manufacturing volumes due to unclear regulations, new tariffs, and market dynamics increase business uncertainty and could impact Gestamp's future earnings and revenue stability.
  
• Net income decreased significantly from €281 million in 2023 to €188 million in 2024, mainly due to lower EBITDA in absolute terms, increased D&A levels, and higher minority interest, which could pressure future earnings and net margins.

Valuation

• The analysts have a consensus price target of €3.289 for Gestamp Automoción based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €4.4, and the most bearish reporting a price target of just €2.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €13.3 billion, earnings will come to €351.0 million, and it would be trading on a PE ratio of 7.9x, assuming you use a discount rate of 14.9%.
  
• Given the current share price of €2.77, the analyst price target of €3.29 is 15.8% 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.