Helmet Standard Shifts And Defense Expansion Will Drive Stronger Long-Term Prospects

Catalysts

About Racing Force

Racing Force designs and manufactures premium motorsport safety equipment, communication systems and advanced helmets for automotive and defense applications.

What are the underlying business or industry changes driving this perspective?

• Rising global visibility and audience growth across Formula 1 and other series, combined with expanding sponsorship and media rights investments, is expected to support order intake for OMP racewear and Bell helmets, supporting revenue growth and a higher mix of premium products that could lift gross margin and EBITDA.
• Mandatory adoption of new FIA and SNELL helmet standards from late 2025 is accelerating replacement cycles and pulling in demand for higher specification helmets. This may drive a multi year upgrade wave that benefits the top line and supports pricing power, with a potential positive impact on gross margin and earnings.
• Diversification into police and military helmets, including the Netherlands riot tender, the gladiator range and the U.S. Air Force program, positions the group to participate in structurally larger defense budgets from 2026 onward. This could create incremental high margin revenue streams that may support earnings and help stabilize cash flow across cycles.
• In house development of lightweight sublimated race suits and internalization of key production steps are reducing unit costs and lead times while enhancing product differentiation. As volumes grow, this may widen operating leverage and translate into improved EBITDA margin and stronger free cash flow conversion.
• New communication platforms such as Driver's Eye, private 5G networks and Zeronoise radio services add a scalable technology and services layer on top of the hardware base. Recurring service contracts can increase revenue per customer and may gradually expand net margins and earnings visibility.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Racing Force's revenue will grow by 7.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.9% today to 8.9% in 3 years time.
• Analysts expect earnings to reach €7.5 million (and earnings per share of €0.25) by about December 2028, up from €4.7 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as €8.9 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 29.5x on those 2028 earnings, up from 28.6x today. This future PE is lower than the current PE for the IT Leisure industry at 30.3x.
• 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 9.6%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The defense diversification strategy relies heavily on milestones that keep slipping, including delays in the U.S. Air Force contract and the need to secure certifications and tenders for Riot and Gladiator helmets. Any further postponements or tender losses could push out or reduce the expected step change in high margin revenue and earnings growth.
• The motorsport business remains structurally seasonal and concentrated around a few premium series and partnerships such as Formula 1, Mercedes, Audi and key dealers. A downturn in media interest, sponsorship budgets or a loss of major team contracts could weaken order intake and slow the currently high margin driver equipment revenue growth.
• Racing Force is increasing CapEx above historical levels to expand headquarters, production capacity and R&D for both motorsport and defense. If sales growth or pricing power underperform, the higher fixed cost base could compress EBITDA margins and reduce free cash flow relative to recent periods of very strong cash conversion.
• New communication platforms such as Driver's Eye, Skier's Eye, Zeronoise services and private 5G networks target markets that are described as stagnant or dominated by a few incumbents. Slower than expected adoption or failure to win long term service contracts could limit the contribution of these projects to recurring revenue, scalability and net margin expansion.
• The group operates globally with significant intra group loans in different currencies and has already seen a meaningful swing in unrealized foreign exchange differences that reduced net income. Continued currency volatility or an adverse shift in trade tariffs, especially affecting suppliers and smaller competitors, could introduce earnings volatility and pressure on net profit margins over the long term.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of €6.2 for Racing Force based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be €84.0 million, earnings will come to €7.5 million, and it would be trading on a PE ratio of 29.5x, assuming you use a discount rate of 9.6%.
  
• Given the current share price of €4.87, the analyst price target of €6.2 is 21.5% 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.