LeasePlan Integration And Partnerships With BYD, Volvo, Kia, Hyundai Will Drive Future Operational Efficiencies

Key Takeaways

• Synergies from LeasePlan integration and cost reductions enhance operating efficiency, supporting improved net margins and future earnings growth.
  
• Partnerships with key car manufacturers and focus on fleet growth in profitable segments drive sustainable growth and shareholder value.
  
• Normalization of car prices, regulatory risks, hyperinflation, limited asset growth, and uncertain EV demand cumulatively threaten Ayvens' revenue, profit margins, and net income stability.

Catalysts

Provides service leasing and vehicle fleet management services.

• The integration of LeasePlan and successful implementation of synergies, particularly in procurement and insurance, have contributed €121 million, emphasizing operational efficiencies and cost savings that should positively impact net margins moving forward.
  
• Ayvens plans to accelerate the IT and legal integration and finalize targeted operating models in overlapping countries as part of its strategic priorities for 2025, which is expected to unlock further synergies and achieve financial targets, potentially enhancing earnings.
  
• New partnerships with top-rated car manufacturers such as BYD, Volvo, Kia, and Hyundai are expected to stimulate future growth in the retail segment, which could significantly impact revenue growth through increased leasing opportunities.
  
• The transition to a lower-cost operational structure, demonstrated by a continuous decrease in underlying operating expenses and a targeted cost-to-income ratio reduction, is likely to enhance operating efficiency and improve net income.
  
• The strategic focus on resuming fleet growth in profitable segments, alongside maintaining high ESG standards and EV transition services for clients, positions Ayvens for sustainable growth, thereby potentially increasing earnings and boosting shareholder value.

Ayvens Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ayvens's revenue will grow by 3.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.4% today to 4.3% in 3 years time.
• Analysts expect earnings to reach €1.2 billion (and earnings per share of €1.45) by about April 2028, up from €610.1 million today. The analysts are largely in agreement about this estimate.
• 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 11.6x today. This future PE is lower than the current PE for the GB Transportation industry at 83.5x.
• 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 7.52%, as per the Simply Wall St company report.

Ayvens Future Earnings Per Share Growth

Risks

• The normalization of used car prices is negatively impacting used car sales results, which could affect revenue and profit margins.
  
• The provision of €93 million for the UK motor finance commission indicates potential regulatory risks, impacting earnings and net margins.
  
• Hyperinflation in Turkey has resulted in a negative €40 million impact, affecting profitability and potentially increasing costs.
  
• The limited growth of earning assets by 2.9% and a funded fleet reduction of approximately 3% year-on-year suggest potential challenges in generating future revenue growth.
  
• An uncertain market environment for electric vehicles (EVs), especially battery electric vehicles where demand is not as strong, may lead to additional risks in vehicle depreciation and residual value, impacting net income.

Valuation

• The analysts have a consensus price target of €9.304 for Ayvens 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 €12.0, and the most bearish reporting a price target of just €6.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €28.2 billion, earnings will come to €1.2 billion, and it would be trading on a PE ratio of 7.8x, assuming you use a discount rate of 7.5%.
• Given the current share price of €8.64, the analyst price target of €9.3 is 7.1% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.