Efficiency Plans Will Reduce Fixed Costs By MXN 500 Million

Key Takeaways

• Enhancements in cost efficiency, particularly in People Mobility and Logistics, are improving profitability and net margins through optimized pricing and decreased space utilization.
  
• Efficiency plans, including reduced last-mile operations, are set to significantly cut costs, driving margin expansion and EBITDA growth in the near future.
  
• Political uncertainty, operational cost increases, and focus on acquisitions introduce risks to revenue predictions, profit margins, and overall financial stability.

Catalysts

Operates as a mobility and logistics company in Mexico.

• Traxión's People Mobility segment is achieving price increases with minimal changes to the cost structure, enhancing profitability and potentially improving net margins.
  
• The Mobility of Cargo business is focusing on more profitable circuits and cross-border activities, leading to increased revenue per kilometer despite a reduction in volume, which could boost earnings.
  
• The company is enhancing cost efficiency and productivity within Logistics and Technology, by generating increasing revenue with decreased warehouse space, likely improving net margins and overall profitability.
  
• A significant focus on efficiency plans, including a reduction in last-mile operations and restructuring, is expected to decrease fixed costs by over MX$500 million in 2025, positively impacting net income.
  
• Traxión expects EBITDA growth in the mid-teens for 2025, driven by an efficiency program and modernization efforts, which could lead to margin expansion and improved cash flows.

Grupo Traxión. de Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Grupo Traxión. de's revenue will grow by 12.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.3% today to 3.3% in 3 years time.
• Analysts expect earnings to reach MX$1.4 billion (and earnings per share of MX$4.99) by about March 2028, up from MX$678.5 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 24.9x on those 2028 earnings, up from 13.7x today. This future PE is greater than the current PE for the MX Transportation industry at 14.8x.
• Analysts expect the number of shares outstanding to decline by 3.03% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 19.41%, as per the Simply Wall St company report.

Grupo Traxión. de Future Earnings Per Share Growth

Risks

• The announcement to release 2025 guidance only after closing the Solistica acquisition introduces uncertainty about future financial projections, creating potential risks in accurately forecasting revenue and net margins.
  
• Political noise due to elections in Mexico and the United States could pose risks to trade and market stability, potentially impacting revenue streams and overall earnings.
  
• The shift in route circuits and subsequent increase in operational costs within the Cargo Mobility division, coupled with decreased volume, may challenge profit margins if costs do not normalize as anticipated.
  
• Dependence on significant efficiency improvements and cost control (considering the previous reliance on restructuring expenses) introduces uncertainties around meeting revenue growth and net income targets if these efficiencies are delayed or under-realized.
  
• The focus on M&A with Solistica could distract management, resulting in operational inefficiencies or integration challenges that could adversely affect cash flows and net income.

Valuation

• The analysts have a consensus price target of MX$39.438 for Grupo Traxión. de 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 MX$53.0, and the most bearish reporting a price target of just MX$33.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be MX$41.0 billion, earnings will come to MX$1.4 billion, and it would be trading on a PE ratio of 24.9x, assuming you use a discount rate of 19.4%.
• Given the current share price of MX$16.95, the analyst price target of MX$39.44 is 57.0% 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.