Electromobility Initiatives And Global Expansion Will Improve Future Prospects

Key Takeaways

• Piaggio's investment in electromobility and production improvements is set to drive revenue growth and improve margins by meeting legislative requirements.
  
• Expansion in India with new vehicles is poised to boost sales, while premium brand positioning in Asia-Pacific targets growth in the premium segment.
  
• Destocking and global uncertainties threaten revenue recovery, while high investments and interest rates strain cash flow and margins amidst challenging market conditions.

Catalysts

Engages in development, manufacture, and distribution of two-wheeler and commercial motor vehicles.

• The destocking strategy completed in 2024, which involved reducing dealer inventories by €110 million, sets the stage for potential revenue growth in 2025 as markets stabilize and dealers begin restocking, supporting healthier sell-in and improved inventory turnover. This will likely impact revenue positively.
  
• Piaggio's enhanced focus and increased investment in electromobility and production improvements, such as the launch of their first-ever electric vehicle and upgrading the Moto Guzzi house, are expected to drive future revenue growth and improve net margins through technological advancements and meeting new legislative requirements.
  
• Expansion into new markets, particularly in India where Piaggio plans to introduce new two-wheel and three-wheel vehicles, is anticipated to boost sales volumes and revenue, contributing to both top-line growth and market share enhancement.
  
• Piaggio's strategic focus on maintaining and expanding premium brand positioning in the Asia-Pacific, especially the Vespa brand in Southeast Asia, aims to leverage brand strength to capture growth in the premium segment, potentially enhancing both revenue and net margins.
  
• Anticipated stabilization and potential easing of interest rates, alongside geopolitical reconciliations affecting trade dynamics, are expected to reduce financial burdens and create an environment more favorable to consumer spending, indirectly benefiting revenue and possibly reducing financing costs that affect net margins.

Piaggio & C Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Piaggio & C's revenue will grow by 3.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.0% today to 4.9% in 3 years time.
• Analysts expect earnings to reach €92.1 million (and earnings per share of €0.26) by about April 2028, up from €67.2 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €119 million in earnings, and the most bearish expecting €64.7 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.5x on those 2028 earnings, up from 9.4x today. This future PE is lower than the current PE for the GB Auto industry at 18.7x.
• Analysts expect the number of shares outstanding to decline by 0.17% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 17.17%, as per the Simply Wall St company report.

Piaggio & C Future Earnings Per Share Growth

Risks

• The destocking process, which caused a €110 million reduction in revenues, is expected to have a lingering impact as Piaggio readjusts its dealer network, potentially leading to an initial weaker sell-in for 2025 and constraining revenue recovery.
  
• Capital expenditure is expected to slightly decrease, yet persistent high investments in technology and new product lines, particularly in medium-range bikes and electric vehicles, could strain operating cash flow and net profit margins.
  
• Elevated interest rates, particularly in the United States and Europe, could dampen consumer demand and purchasing power, affecting revenues and limiting growth potential in premium segments.
  
• Geopolitical events and trade disruptions, such as issues around the Suez Canal and potential tariff wars, could increase logistics and operational costs, negatively affecting Piaggio's working capital management and squeezing gross margins.
  
• Weak market conditions, especially in Asia Pacific regions like China, combined with uncertainties in major markets such as India and Europe, pose risks to sales volumes and market share, potentially hindering revenue growth and impacting overall earnings.

Valuation

• The analysts have a consensus price target of €2.686 for Piaggio & C 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 €4.1, and the most bearish reporting a price target of just €1.9.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €1.9 billion, earnings will come to €92.1 million, and it would be trading on a PE ratio of 16.5x, assuming you use a discount rate of 17.2%.
• Given the current share price of €1.78, the analyst price target of €2.69 is 33.7% 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.