Deutz AG - Traditional Engine Manufacturer in Transition

Brief Summary for Investors: Deutz AG is an established manufacturer of diesel and gas engines for various industrial applications. The company is undergoing a transformation process towards alternative drives, including electrification.

Development The share price exhibits strong volatility, which correlates closely with the company's results. After a slump during the COVID-19 pandemic (2020), the share price recovered significantly by mid-2021, driven by increasing sales and a return to profitability. The years 2022 and 2023 were characterized by macroeconomic uncertainty, supply chain bottlenecks, and recessionary fears, leading to a significant share price decline. The recent strong upward trend since the beginning of 2025 reflects the significantly improved quarterly figures and a return to operating strength. Historical performance was primarily influenced by cyclical demand in the core markets (construction equipment, agriculture), profitability, and free cash flow development.

Opportunities:

• Transformation: The strategic expansion into electric and hybrid drives (Torqeedo, Futavis) is opening up growth markets beyond the traditional combustion engine business.
• Operational Improvement: Recent quarters show a significant recovery in sales and EBIT, indicating operational efficiency gains and robust demand.
• Strong Cash Generation: The company has a proven ability to generate free cash flow, providing financial flexibility for investments and dividends.

Risks:

• Cyclical Dependence: The core business remains highly dependent on the economy and vulnerable to downturns in the key industries of construction and agriculture.
• Transition Risk: The long-term transition away from fossil-fuel combustion engines represents an existential challenge; The success of the new divisions has not yet been scaled.
• Debt: A debt-to-equity ratio of over 1 indicates substantial debt, which can pose a risk in a cyclical downturn. The weak liquidity (quick ratio < 0.5) could become problematic in the event of unexpected bottlenecks.

Additional notes: The quarterly figures for the last 12 months show high volatility, with some negative results (Q1/25, Q3/24), which underscores the inherent unpredictability of the business. The current key figures (ROE: 2.2%, ROA: 1.0%) indicate continued modest returns on capital despite the recovery.

Conclusion: Deutz is showing a significant operational recovery from the lows of the pandemic, driven by economic demand. Short-term performance appears robust. However, the long-term valuation critically depends on the success of the strategic transformation. The company operates in a cyclical and structurally changing environment. While recent developments have been positive, fundamental risks remain high. Investments should assess management's ability to keep the core business profitable while successfully scaling new growth areas.

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