Marine Systems, Green Hydrogen And Steel Europe Will Unlock Value

Key Takeaways

• Strong order backlog and defense tailwinds in Marine Systems, plus a focus on decarbonized steel, position thyssenkrupp for sustainable growth and higher margins.
  
• Structural reforms, segment autonomy, and planned Marine Systems spin-off are expected to boost operational efficiency and unlock previously unrecognized value.
  
• Weak demand, restructuring challenges, reliance on cost-cutting, and underperforming segments threaten profitability, stability, and long-term value creation.

Catalysts

About thyssenkrupp

Operates as an industrial and technology company in Germany and internationally.

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

• Record order backlog in Marine Systems, driven by large submarine/service contracts and defense modernization trends, positions the segment for sustained revenue growth and earnings visibility, especially as geopolitical tensions support long-term demand for naval solutions.
  
• Continued investments and visible progress in green hydrogen initiatives and DRI plant construction for Steel Europe strategically align the company with rising customer demand and regulatory pressure for decarbonized steel, offering the potential to command premium pricing and improve segment margins.
  
• Successful restructuring actions-such as workforce reductions, consensus on collective agreements in Steel Europe, and ongoing APEX 2.0 efficiency initiatives-are expected to drive operational cost savings, aiding both net margin expansion and positive cash flow even in soft demand environments.
  
• The spin-off and impending separate listing of Marine Systems, together with planned segment autonomy across the portfolio, may unlock hidden asset value and improve transparency, supporting higher group valuation and better resource allocation, with positive effects on return on capital employed and earnings.
  
• Temporary softness in green/Decarbon Technologies bookings is expected to recover over the next two years as regulatory clarity and financing for global green infrastructure improves, reactivating robust project pipelines and supporting group revenue acceleration.

thyssenkrupp Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming thyssenkrupp's revenue will grow by 1.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.9% today to 3.0% in 3 years time.
• Analysts expect earnings to reach €1.0 billion (and earnings per share of €1.66) by about September 2029, up from €286.0 million today.
• 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 12.1x on those 2029 earnings, down from 33.9x today. This future PE is lower than the current PE for the GB Metals and Mining industry at 20.9x.
• 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 7.07%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Persistent macroeconomic headwinds, including weak demand and lower price levels across core segments (Steel, Materials Services, Automotive Technology), are contributing to significant year-over-year sales declines, weakening topline growth prospects and potentially leading to structurally lower revenues.
  
• Ongoing restructuring, workforce reductions, and large restructuring provisions (notably in Steel and Automotive) highlight the company's continuous struggle with operational inefficiencies and high fixed costs, which risk eroding future net margins and profitability.
  
• The Decarbon Technologies segment, while positioned for future growth, currently faces a contracting book-to-bill ratio (~0.7x), indicating slowing order intake and project delays due to uncertain regulatory environments and high interest rates; this could undermine medium-term earnings and cash flows.
  
• Dependence on cost-cutting, claims management, and provision releases to achieve short-term earnings guidance raises concerns about the sustainability of EBIT improvements, making earnings growth highly volatile and susceptible to future revenue shortfalls.
  
• High levels of capital employed in underperforming segments such as Material Services, coupled with questionable returns on capital and ongoing cash outflows, risk constraining group-wide capital allocation and limiting the potential for long-term shareholder returns and stock appreciation.

Valuation

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

• The analysts have a consensus price target of €16.38 for thyssenkrupp 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 €22.0, and the most bearish reporting a price target of just €9.5.
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be €34.2 billion, earnings will come to €1.0 billion, and it would be trading on a PE ratio of 12.1x, assuming you use a discount rate of 7.1%.
• Given the current share price of €15.55, the analyst price target of €16.38 is 5.0% higher. 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.