Expanding Infrastructure And Green Investments Will Drive Opportunity

Key Takeaways

• Rising infrastructure and mining projects, plus modernization trends, support long-term growth in equipment sales, service revenue, and earnings stability.
  
• Sustainability investments and portfolio streamlining position the company for higher margins, profitability, and resilience to evolving client and regulatory demands.
  
• High exposure to geopolitical, regulatory, economic, and industry shifts threatens revenue stability, margin preservation, and long-term asset value in core business segments and regions.

Catalysts

Operates as an industrial processing, distribution, and services company in Southern Africa, the United Kingdom, Australia, Russia, and Mongolia.

• Increasing infrastructure development (e.g., South African grid expansion, Zambia copper projects, Mongolia mining pipeline) is set to drive demand growth in heavy equipment, construction, and power solutions-supporting equipment sales, aftersales, and rental revenue over the medium to long term.
  
• Accelerated investments in environmental sustainability and energy-efficient assets (solar installation, upgraded effluent treatment plants) position Barloworld to capture a growing share of business as clients pivot to green equipment-enhancing product mix and potentially driving margin expansion in line with evolving client and regulatory demands.
  
• The company's strategic move towards higher-margin, recurring service revenues-evident in strong rental growth (+17.8% Y/Y), aftermarket focus, and investment in digital fleet management-should bolster revenue resilience and net margins through economic cycles.
  
• Successful portfolio streamlining (disposal of non-core businesses, targeted CAPEX on core operations) combined with disciplined cost containment and a strong balance sheet will likely improve return on invested capital and overall profitability.
  
• Secular demand growth in critical minerals (copper, coal, gold) and ongoing mechanization/modernization in African mining and construction provide a tailwind for recurring equipment sales and support services, underpinning stable or rising long-term revenue and supporting future earnings growth.

Barloworld Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Barloworld's revenue will grow by 2.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.2% today to 5.7% in 3 years time.
• Analysts expect earnings to reach ZAR 2.5 billion (and earnings per share of ZAR 13.42) by about July 2028, up from ZAR 1.7 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ZAR2.1 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.7x on those 2028 earnings, up from 12.5x today. This future PE is greater than the current PE for the GB Trade Distributors industry at 11.1x.
• Analysts expect the number of shares outstanding to decline by 1.79% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 20.75%, as per the Simply Wall St company report.

Barloworld Future Earnings Per Share Growth

Risks

• Prolonged geopolitical instability and regulatory risks, especially relating to the investigation into export control breaches in VT (Russia), as well as the impact of sanctions and a shrinking addressable market, could result in ongoing operational uncertainty and potentially stranded assets, directly impacting group net earnings and cash flows.
  
• Extended weak commodity (especially coal) prices and a hesitant mining recovery in Southern Africa are driving a shift from outright equipment purchases to rentals, depressing high-margin equipment sales and contributing to higher working capital, potentially limiting revenue and squeezing margins if inventory backlogs persist.
  
• Exposure to volatile currencies (notably rand/dollar shifts), regulatory unpredictability in emerging markets (e.g., mining law amendments and tax changes in Mongolia), and domestic inflation could introduce persistent swings in revenues and erode net margins or return on invested capital over the long term.
  
• The decline in aftermarket revenue and a reduction in parts sales, combined with competitive pressures and the risk of OEMs expanding direct-to-customer channels, may challenge Barloworld's ability to maintain historical gross margins and could result in longer-term revenue attrition.
  
• The company's heavier focus on cyclical sectors and regions with high political, regulatory, and economic risk (DRC, Mongolia, Russia), alongside emerging global trends toward electrification and circular economy models, could suppress long-term demand for traditional heavy equipment, reducing earnings growth and potentially impairing asset values.

Valuation

• The analysts have a consensus price target of ZAR103.25 for Barloworld 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 ZAR120.0, and the most bearish reporting a price target of just ZAR87.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ZAR44.3 billion, earnings will come to ZAR2.5 billion, and it would be trading on a PE ratio of 12.7x, assuming you use a discount rate of 20.7%.
• Given the current share price of ZAR114.5, the analyst price target of ZAR103.25 is 10.9% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.