Berenberg has downgraded Troax Group AB to "hold" from "buy," reducing its price target to 120 Swedish crowns from 165 crowns. The brokerage firm says consensus expectations for profit margin recovery at the perimeter protection manufacturer are too optimistic and that the company will face an extended period of pressure from the automotive end market.
According to Berenberg, consensus forecasts assume the adjusted EBITA margin will increase from 13% on a last-12-months basis to 18% in 2027. The broker considers that path unrealistic and models 2027 EBITA about 15% below consensus levels, reflecting a more protracted margin recovery timeline.
"We do not think anything is broken at Troax, but expect the margin recovery to take years rather than quarters, which is not reflected in either consensus estimates or the valuation," Berenberg wrote in its note.
Troax reported first-quarter 2026 results on April 21. While acquisitions provided a stronger contribution in the period, Berenberg said underlying performance was disappointing across the board. Order intake declined 5%, revenue fell 13% and the reported EBITA margin slipped to 10.1%. The broker noted the company benefited from higher-margin acquisitions and recorded €2.4 million of extraordinary items below the line.
On the demand side, Berenberg saw a pronounced weakness in Troax’s automotive customer segment, estimating a drop of at least 50% in that area. By contrast, warehouse-related orders grew by more than 5% for the second consecutive quarter.
The brokerage anticipates little improvement heading into the second quarter. It cited several operational headwinds that are continuing to weigh on deliveries and profitability: an ongoing U.S. factory transfer that is affecting output, Swedish production not yet fully ramped following a transfer from Poland, and the closure of commercial partitioning manufacturing operations in the U.K.
Acquisitions bolstered Troax’s top-line performance in the quarter: Vichnet, Stommpy and Dancop together added €14 million of revenue and €17.4 million of order intake in the quarter. Berenberg described this contribution as "a positive surprise," noting the combined companies generated €40 million of revenue in 2024.
However, M&A activity has pushed leverage higher. Troax’s net debt-to-pro forma EBITDA rose to 2.7 times in the first quarter from below 1 time a year earlier. Berenberg expects that ratio to exceed 3 times later in 2026, which the broker says will leave limited capacity for further acquisitions in the near term.
Berenberg’s price target of SEK 120 is derived from a discounted cash flow model that assumes a 7% intermediate growth rate, a sustainable EBITDA margin of 23% and a weighted average cost of capital of 9%.
Summary
Berenberg lowered its rating on Troax to "hold" and cut its price target to SEK 120, arguing that consensus margin recovery projections are too optimistic. Weakness in the automotive customer base, disappointing underlying Q1 performance despite acquisitions, and rising leverage from recent deals underpin the broker’s more cautious outlook.
Key points
- Berenberg downgraded Troax to "hold" and reduced the price target to 120 SEK from 165 SEK, citing overly optimistic margin expectations.
- Q1 2026 showed a 5% decline in order intake, a 13% fall in revenue and an EBITA margin of 10.1%, with €2.4 million of extraordinary items recorded below the line.
- Automotive orders appear to have dropped by at least 50%, while warehouse orders increased by more than 5% for a second consecutive quarter; acquisitions added €14 million of revenue and €17.4 million of order intake in the quarter.
Risks and uncertainties
- Continued weakness in the automotive sector could prolong pressure on Troax’s organic revenue growth and margins - this affects industrial suppliers and auto-related manufacturing markets.
- Operational disruptions from factory transfers and manufacturing closures are restraining deliveries and profitability, impacting supply-chain and production-sensitive sectors.
- Rising leverage following acquisitions - net debt-to-pro forma EBITDA increased to 2.7 times and is expected to exceed 3 times later in 2026 - could limit Troax’s ability to pursue further M&A, affecting M&A activity in industrial equipment markets.