Successful IT Platform Migrations And Fleet Optimization Will Drive Earnings Growth

Key Takeaways

• Completed IT platform migrations and fleet management strategies are set to enhance net margins, earnings, and overall asset utilization.
  
• Reduction in portfolio volatility and interest rate sensitivity provides stability, supporting returns on equity and net income growth.
  
• Volatility in earnings due to derivative impacts and market challenges threatens Ayvens' financial stability, profit margins, and revenue growth.

Catalysts

Provides service leasing and vehicle fleet management services.

• Ayvens has successfully completed IT platform migrations in 5 countries, representing approximately 26% of its fleet, resulting in harmonized business processes and anticipated cost synergies in the coming quarters. This is likely to positively impact both net margins and earnings.
  
• The ongoing reduction in Ayvens' derivatives portfolio volatility, as well as a decrease in related interest rate sensitivity, is expected to provide more stability in financial results, which could enhance net income in the future.
  
• Ayvens has been progressively achieving higher synergies each quarter, with €80 million year-to-date towards a target of €120 million for 2024, which should support improved net margins and earnings.
  
• With a strong capital position of a CET1 ratio of 12.6% and proactive management of its fleet, Ayvens is well-positioned to optimize asset utilization and capital deployment, potentially leading to better returns on equity and earnings growth.
  
• Strategic actions concerning fleet composition, such as adjusting exposure in unfavorable markets and optimizing EV resale channels, are expected to stabilize revenue streams and sustain high used car sales profits, bolstering both revenue and net income.

Ayvens Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ayvens's revenue will grow by 2.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.9% today to 5.5% in 3 years time.
• Analysts expect earnings to reach €1.5 billion (and earnings per share of €1.45) by about January 2028, up from €479.2 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.5x on those 2028 earnings, down from 12.1x today. This future PE is lower than the current PE for the GB Transportation industry at 85.1x.
• Analysts expect the number of shares outstanding to grow by 7.2% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.62%, as per the Simply Wall St company report.

Ayvens Future Earnings Per Share Growth

Risks

• Ayvens recorded a decrease in net income, which was impacted by negative nonrecurring items and a pretax swing impact on the mark-to-market of derivatives, indicating volatility in earnings. This affects the company's financial stability and profit margins.
  
• The market for battery electric vehicles (BEVs) showed weakness, which poses a risk to used car resale values and could lead to decreased revenue from this segment.
  
• The company's operating expenses are impacted by IT integration costs, though there is a plan to address this, unexpected costs related to large projects could impact net margins.
  
• Ayvens is conscious of reducing its fleet in markets like the U.K. and Turkey due to less attractive dynamics, reflecting risks to revenue growth as these markets remain challenging.
  
• The ongoing adjustments in interest rates and competition necessitate careful pricing strategies; future revenue and earnings could be affected if Ayvens must continue to sacrifice margin to maintain competitiveness.

Valuation

• The analysts have a consensus price target of €8.98 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 €26.7 billion, earnings will come to €1.5 billion, and it would be trading on a PE ratio of 7.5x, assuming you use a discount rate of 6.6%.
• Given the current share price of €7.09, the analyst's price target of €8.98 is 21.1% 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.