OEM Build Rate Reliance And Customer Destocking Will Pressure Aerostructure Margins

Catalysts

About Montana Aerospace

Montana Aerospace is a pure play aerostructures supplier focused on aerospace components across extrusion, machining, assemblies and related systems.

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

• Reliance on OEM build rate plans for programmes such as the A320 and 737, combined with Montana Aerospace management explicitly applying discounted pull rate assumptions versus OEM announcements, could cap volume growth and limit the uplift in contracted sales of more than €7b flowing through to revenue and EBITDA.
• Inventory overhang at key Tier 1 customers and OEM assembly sites, including fuselage and wing glider stock, suggests customer destocking could reduce order pull from Montana Aerospace. This may weigh on utilisation of its installed capacity of about €1.2b revenue and pressure margins and earnings.
• A long position in the U.S. dollar with roughly 30% of sales exposed, together with guidance based on an FX rate of 1.19, leaves earnings sensitive to currency moves. Any further euro strength or less effective hedging could reduce reported revenue, EBITDA and free cash flow.
• Management focus on vertically integrated, large work packages and refusal of single technology work may limit flexibility if OEMs rebalance sourcing after events such as the Spirit AeroSystems integration. This could slow new contract wins and affect medium term revenue growth and cash generation.
• Ongoing supply chain fragility, including fastener shortages and mixed demand signals across extrusion, machining and assembly, may force Montana Aerospace either to carry higher trade working capital or accept lower throughput in some assets. Both outcomes could constrain net margin expansion and free cash flow.

Assumptions

How have these above catalysts been quantified?

• This narrative explores a more pessimistic perspective on Montana Aerospace compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Montana Aerospace's revenue will grow by 8.7% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 1.7% today to 7.5% in 3 years time.
• The bearish analysts expect earnings to reach €96.2 million (and earnings per share of €1.54) by about June 2029, up from €17.2 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as €152.0 million.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 20.8x on those 2029 earnings, down from 81.2x today. This future PE is lower than the current PE for the CH Aerospace & Defense industry at 81.2x.
• The bearish analysts expect the number of shares outstanding to grow by 0.91% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 4.97%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Management has repositioned Montana Aerospace as a pure play aerostructures group with a fully integrated value chain and a local to local footprint, which customers appear to favor for larger work packages and supply security. This setup could support higher contracted revenue conversion and more resilient net margins than a bearish view assumes.
• Contracted sales of more than €7b, long term OEM agreements and the claim that Montana Aerospace is winning additional, vertically integrated work packages from Tier 1s and OEMs could translate into steadier volume and pricing power, supporting revenue and EBITDA rather than a sustained drop in sales.
• The carve out of the Energy segment at an enterprise value of about €204 million, the planned debt to equity swap of more than €66 million and guidance toward a possible net cash position by 2026 together point to a lighter balance sheet and lower interest costs, which may support earnings and free cash flow instead of constraining them.
• Management repeatedly refers to aerospace as an industry with very long term contracts and expresses confidence in achieving at least the 2025 and 2026 guidance. If OEM build rates and contract wins track closer to these internal plans than to a bearish scenario, EBITDA margins and earnings could hold up better than expected.
• The company reports 9 months 2025 aerospace net sales of €712 million, EBITDA that management describes as over proportional to sales and an operational free cash flow profile that they view as strong. If this level of cash generation continues alongside capacity of about €1.2b revenue, net margins and earnings may be more resilient than a thesis centered on a share price decline suggests.

Valuation

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

• The assumed bearish price target for Montana Aerospace is CHF24.71, which represents up to two standard deviations below the consensus price target of CHF32.56. This valuation is based on what can be assumed as the expectations of Montana Aerospace's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CHF53.01, and the most bearish reporting a price target of just CHF24.71.
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be €1.3 billion, earnings will come to €96.2 million, and it would be trading on a PE ratio of 20.8x, assuming you use a discount rate of 5.0%.
• Given the current share price of CHF20.5, the analyst price target of CHF24.71 is 17.0% 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.