Jefferies Upgrades Friedrich Vorwerk to 'Hold' on Valuation After 40% Share Decline

Jefferies has upgraded German energy infrastructure company Friedrich Vorwerk Group SE to 'Hold' from 'Underperform', citing the stock's significant price decline of approximately 40% from its October peak. The investment bank maintained its price target at €65, suggesting it now sees limited further downside risk to the company's valuation.

Valuation Rationale

The upgrade follows what Jefferies analyst Martin Comtesse described as a "significant derating" for the company over the past eight months. Friedrich Vorwerk now trades at 6.7 times EV/EBITDA and 14 times forward price-to-earnings for fiscal 2026, which Jefferies noted "is a fair reflection of the elevated risks."

Despite the rating change, the firm's forecasts remain unchanged. Jefferies projects 8% EBITDA growth and 5% EPS growth for fiscal 2026. For fiscal 2027, it anticipates 10% revenue growth with a 21.7% EBITDA margin, which is within management’s target range.

German Policy Shift Poses Headwind

A key risk highlighted in the report is a recent legislative change in Germany impacting electricity grid construction. The German Bundestag approved a law that prioritizes new high-voltage DC power lines as overhead lines, removing the previous preference for underground cables to accelerate deployment and reduce costs.

Ad

This policy shift directly affects Friedrich Vorwerk's future project pipeline. According to Jefferies, over 60% of the company's current order backlog is in electricity projects, with roughly half of that specifically exposed to underground cables. While tendered projects in the backlog are not affected, future projects are now likely to be tendered for overhead lines, an area where Friedrich Vorwerk currently has no exposure.

Analyst Outlook and Scenarios

For the second quarter, Jefferies modeled revenue of €190 million and EBITDA of €43.6 million, expecting progress in the seasonally stronger quarter to offset a weather-impacted first quarter. The report also noted the company's deployment of automated welding robots in Central Asia as a potential new revenue stream.

Jefferies' base-case valuation of €65 per share is based on a discounted cash flow model assuming a 10% organic top-line compound annual growth rate from 2025 to 2028 and a sustainable 21% EBITDA margin. The firm also outlined an upside scenario of €98 and a downside scenario of €50, contingent on future growth and margin performance.