Long Term Shift To Cinema Services And Software Will Transform Earnings Power

Catalysts

About Barco

Barco provides visualization, connectivity and software solutions for entertainment, enterprise and healthcare customers worldwide.

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

• The shift in cinema from one-time projector sales to Barco’s HDR by Barco Cinema as a Service model, with annual license fees, box office sharing, content-related licenses and managed services over more than 15 years, directly targets higher and more predictable recurring revenue and a larger share of the total contract value, which already totals €89 million.
• Premiumization in cinema and the ongoing lamp-to-laser replacement wave, combined with Barco’s high capture rate of well above 60% and technology leadership in HDR projection, support sustained demand for higher-value systems and can lift Entertainment revenue and margins over time.
• Growth in wireless and room-based collaboration, supported by the new Microsoft-certified ClickShare Hub and an expanded family of form factors such as future video bars and BYOD variants, opens access to broader ecosystems and channels, which can support Enterprise revenue and gross margin through higher scale and software-rich offerings.
• The move in control rooms from hardware to software with the Barco CTRL platform, together with a focused role in LED through partnerships while supplying high-performance image processing, is aimed at a more profitable mix and greater software and services contribution to gross margin and EBITDA.
• In Healthcare, leadership in diagnostic imaging and the push into software applications such as SlideRightQA, plus new 3D displays and voice-controlled surgical solutions, position the division to grow higher-margin software and advanced hardware revenue and to support earnings, especially as the reorganization and China-based modality hub target more competitive cost structures.

Assumptions

How have these above catalysts been quantified?

• This narrative explores a more optimistic perspective on Barco compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Barco's revenue will grow by 4.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 7.4% today to 8.8% in 3 years time.
• The bullish analysts expect earnings to reach €95.8 million (and earnings per share of €0.91) by about April 2029, up from €71.6 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 bullish analyst cohort, the company would need to trade at a PE ratio of 14.9x on those 2029 earnings, up from 11.0x today. This future PE is greater than the current PE for the GB Electronic industry at 12.3x.
• The bullish analysts expect the number of shares outstanding to decline by 4.96% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.1%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Shorter order cycles and a shift to book-and-turn ordering reduce Barco's forward visibility, so any hesitation from customers or delays in large projects could translate quickly into softer sales and more volatile revenue and earnings.
• Tariffs on projection products and currency headwinds already created sizeable cost and FX impacts in 2025. If similar trade or FX pressures persist or reappear, they could erode gross margins and limit EBITDA progress even when sales are stable.
• The Healthcare division is facing structurally tougher conditions in the U.S., including delayed government spending, tariff and FX effects, and exposure to cuts in public health budgets. This may prolong margin pressure and weigh on divisional EBITDA and group earnings if recovery is slower than expected.
• Enterprise is exposed to intense competition in APAC and to changing technology standards in meeting rooms. If ClickShare Hub and related products do not scale as hoped, or if pricing pressure from large ecosystems like Microsoft Teams Rooms increases, this could cap growth and compress gross margin and EBIT in the segment.
• The shift to Cinema as a Service and HDR by Barco creates long multi-year recurring contracts, but it also concentrates returns over a 15-plus-year projector life. Any slowdown in cinema replacement cycles, weaker content-driven attendance, or contract renegotiations could leave Entertainment with lower recurring revenue and flatter EBITDA than investors expecting a rapid ramp-up.

Valuation

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

• The assumed bullish price target for Barco is €16.0, which represents up to two standard deviations above the consensus price target of €13.12. This valuation is based on what can be assumed as the expectations of Barco's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €16.0, and the most bearish reporting a price target of just €10.0.
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be €1.1 billion, earnings will come to €95.8 million, and it would be trading on a PE ratio of 14.9x, assuming you use a discount rate of 8.1%.
• Given the current share price of €9.68, the analyst price target of €16.0 is 39.5% 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.