Achieving Carbon Neutrality By 2025 Will Increase Energy Efficiency

Key Takeaways

• The consolidation of business groups and focus on efficiency measures are expected to enhance operating and net margins by reducing costs.
  
• Strategic geographic diversification and push into PHEV markets may bolster revenue and earnings through market growth and electrification solutions.
  
• Europe's market struggles and reliance on lighting expose OPmobility to risks in growth and margins, amid regulatory and competitive challenges affecting profitability and cash flow.

Catalysts

Engages in the manufacture and sale of exterior vehicle lighting systems, batteries, and electrification systems for electric mobility in Europe, North America, China, rest of Asia, South America, the Middle East, and Africa.

• OPmobility's commitment to carbon neutrality by 2025 for Scope 1 and 2 emissions is likely to improve net margins through energy efficiencies and potential cost savings from reduced energy consumption and infrastructure investments.
  
• The consolidation of Exterior and Lighting business groups aims to exploit synergies and reduce costs, thereby enhancing the operating margin.
  
• The strong growth potential in North America and Asia, driven by market outperformance and strategic geographical diversification, is expected to positively impact revenue.
  
• OPmobility's strategic push into PHEV and Range Extender markets could result in increased sales volume and improved earnings, driven by the transition to more integrated electrification solutions.
  
• The company's ongoing focus on cost control and efficiency measures, including reduced SG&A expenses and factory optimizations, is expected to improve net results by lowering operating costs.

OPmobility Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming OPmobility's revenue will grow by 2.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.6% today to 2.5% in 3 years time.
• Analysts expect earnings to reach €276.5 million (and earnings per share of €1.76) by about April 2028, up from €170.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €392.2 million in earnings, and the most bearish expecting €208.2 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.8x on those 2028 earnings, down from 7.9x today. This future PE is lower than the current PE for the GB Auto Components industry at 8.3x.
• Analysts expect the number of shares outstanding to decline by 0.79% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.99%, as per the Simply Wall St company report.

OPmobility Future Earnings Per Share Growth

Risks

• The market in Europe, which represents 50% of OPmobility's sales, is suffering a decline, primarily due to slow electrification and high inventory levels, impacting revenue growth in this region.
  
• The company's reliance on its lighting business, which experienced a revenue drop of 24% in 2024, presents a risk to sustained revenue growth and net margins if recovery does not materialize as anticipated by 2026.
  
• Uncertainties related to regulations in Europe and potential volatility due to U.S. tariffs pose risks to OPmobility's revenue and cost management strategies, potentially affecting net earnings.
  
• The delay of hydrogen market adoption by two years could impact the profitability and cash flow related to OPmobility's investments in hydrogen technologies, influencing overall financial performance.
  
• Continued competitive pressures and market consolidation, particularly in the combustion engine sector, may lead to further restructuring costs or plant closures, potentially affecting future operating margins and net earnings.

Valuation

• The analysts have a consensus price target of €11.3 for OPmobility 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 €14.0, and the most bearish reporting a price target of just €7.2.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €11.1 billion, earnings will come to €276.5 million, and it would be trading on a PE ratio of 7.8x, assuming you use a discount rate of 11.0%.
• Given the current share price of €9.43, the analyst price target of €11.3 is 16.5% 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.