Brembo S.p.A Faces Potential Challenges Amid Market Shifts
UBS Downgrades Brembo S.p.A Stock
UBS recently initiated coverage on Brembo S.p.A (BRE:IM) with a Neutral rating, setting a price target of €10.10. This decision comes amidst growing concerns regarding premium OEM demand specifically in the Chinese market.
Forecast of Growth Amid Challenges
The financial services firm sees Brembo poised to surpass the average growth of light vehicle production from 2024 to 2027, expecting an annual growth rate of about 4-5 percentage points. This optimistic outlook is largely due to Brembo's ongoing capacity expansion and the rollout of innovative products, predicting a compound annual growth rate (CAGR) in revenue of roughly 7%.
Operating Profit Margins Expected to Rise
UBS estimates that Brembo's operating profit margin (OPM) will gradually increase, projecting it to reach around 11.5% by 2027, an improvement from 11% anticipated in 2024. Correspondingly, it forecasts that earnings per share (EPS) will rise by approximately 10% annually. Despite this positive outlook, UBS's forecasts fall short of consensus estimates by 5-10%, partly due to subdued expectations for revenue growth and overall profitability.
Potential Risks to Earnings
As the earnings seasons approach, UBS warns of possible downgrades in industry volume that could negatively impact Brembo's EPS for the 2025 fiscal year. They predict potential reductions of up to 15%, especially if revenues show little to no growth against a 6% consensus estimate.
Impact of German OEMs on Brembo's Revenue
Another area of concern highlighted by UBS is Brembo's substantial dependency on German premium OEMs, estimated to contribute at least 20% of the company's overall revenue. With these OEMs currently facing steep volume declines in China, there are valid reasons for caution about Brembo's future performance.
Management Guidance Under Scrutiny
Given the adverse market conditions, UBS posits that it would not be unexpected for Brembo's management to adjust its fiscal year 2024 guidance downward during the upcoming third-quarter reports. Such revisions could influence investor sentiment and market perceptions of the company's resilience.
Frequently Asked Questions
What is the new rating for Brembo by UBS?
UBS has assigned a Neutral rating to Brembo with a price target of €10.10.
What are the growth projections for Brembo?
UBS expects Brembo to achieve an average annual growth rate of 4-5% from fiscal year 2024 to 2027.
How are Brembo's profit margins expected to change?
The operating profit margin is projected to gradually increase, reaching about 11.5% by fiscal year 2027.
What risks does UBS see for Brembo's earnings?
UBS anticipates possible EPS reductions of up to 15% for fiscal year 2025 due to potential industry volume downgrades.
How dependent is Brembo on the German OEM market?
Brembo relies significantly on German premium OEMs, which represent at least 20% of its revenue, currently impacted by declining volumes in China.
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