Slowing EV Adoption And Margin Squeeze Will Weaken Future Prospects

Key Takeaways

• Weakening policy, slowing EV adoption, and European market dependency threaten Alfen's long-term revenue prospects and amplify exposure to regional regulation and economic fluctuations.
  
• Heightened competition and falling battery storage prices are compressing margins, undermining sustainable profitability and earnings quality across key business lines.
  
• Strong industry demand, operational improvements, and innovative products position Alfen to benefit from long-term energy transition trends and regain sustained revenue and profit growth.

Catalysts

Through its subsidiaries, engages in the design, engineering, development, production, and service of smart grid solutions, energy storage systems, and electric vehicle charging equipment.

• The combination of slowing revenue growth-Alfen now guides for only zero to five percent revenue growth in 2026, down from previous expectations of five to ten percent-and continued challenges in energy transition policy momentum, with permitting delays, labor shortages and limited grid expansion, threatens to cap long-term top-line potential for the business.
  
• Long-term adoption of electric vehicles across Europe is weakening, with order books in key markets such as the Netherlands and Germany not rising despite recent growth in vehicle registrations, implying that demand for large-scale charging infrastructure could plateau or even decline, reducing Alfen's addressable market and negatively impacting EV charging revenues.
  
• Rising competition from both domestic and international players is driving aggressive pricing pressure, particularly in the EV charging segment and increasingly in battery storage, resulting in ongoing gross margin compression and diminished prospects for sustainable net margin improvement.
  
• Downward trends in battery prices, persistent industry oversupply, and improved battery technology are causing significant price declines per megawatt hour for battery storage, forcing Alfen to chase volumes at the expense of profitability and eroding earnings quality over time.
  
• High dependency on the European market leaves Alfen exposed to region-specific regulatory shifts and economic slowdowns, which-combined with high fixed costs and recent investments in overcapacity for Smart Grid Solutions-will make it difficult to align costs with muted revenue growth, putting further pressure on net margins and long-term cash flow.

Alfen Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Alfen compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Alfen's revenue will grow by 2.1% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -3.8% today to 2.0% in 3 years time.
• The bearish analysts expect earnings to reach €9.4 million (and earnings per share of €0.35) by about September 2028, up from €-17.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 22.1x on those 2028 earnings, up from -11.9x today. This future PE is greater than the current PE for the NL Electrical industry at 14.6x.
• 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 7.28%, as per the Simply Wall St company report.

Alfen Future Earnings Per Share Growth

Risks

• The global push for electrification and European policy (such as AFIR) continue to create a strong secular tailwind for Alfen's markets, suggesting that medium
• to long-term demand for EV charging, smart grid solutions, and energy storage will recover and grow, supporting potential revenue and earnings growth.
  
• Alfen's margins are currently showing improvement due to effective cost reduction and operational efficiency measures, so further benefit from these actions could drive EBITDA margin back toward management's higher ambitions, lifting profits.
  
• Product innovation such as the launch of Plus models, AFIR-compliant chargers, and advanced installation tools could support differentiation, pricing power, and demand, leading to improved market positioning and mitigating competitive pressure, thereby supporting revenue and margin resilience.
  
• The company's backlog and pipeline for energy storage projects are robust, with sufficient coverage for 2025 and positive momentum building for 2026; this indicates underlying demand remains and could translate to stabilized or higher future revenues.
  
• Long-term industry trends such as grid modernization, renewable integration, and digital energy management remain intact, suggesting that once temporary headwinds (like permitting and labor shortages) abate, Alfen could see a return to revenue and profit growth as these trends drive ongoing investment in its core offerings.

Valuation

• The assumed bearish price target for Alfen is €8.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Alfen's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €14.0, and the most bearish reporting a price target of just €8.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €482.0 million, earnings will come to €9.4 million, and it would be trading on a PE ratio of 22.1x, assuming you use a discount rate of 7.3%.
• Given the current share price of €9.45, the bearish analyst price target of €8.0 is 18.1% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.