ZF : Negative earnings as expected and Strategic Responses

In the fiscal year 2024, ZF reported sales of approximately €41.4 bn, marking an 11% decline from €46.6 bn in 2023 (with organic growth at -3.8%). This downturn is a direct result of a challenging market environment characterized by lower demand for electric vehicles (EVs), geopolitical uncertainties, a general economic slowdown, negative FX effects, and perimeter changes. Adjusted Free Cash-Flow (FCF) was €0.3 bn, but excluding adjustments, FCF was negative due to lower operating activities and higher capital expenditure levels. Credit metrics worsened as expected , with a adj. debt-to-EBITDA ratio of 6.5x. We expect earnings to bottom out in 2024 and stabilize in 2025, with potential asset disposals, including ZF Lifetec , serving as key catalysts for further deleveraging . Company outlook for 2025 remains cautious. In our view, ZF presents the best risk-return valuation in the auto parts sector, making it an ideal candidate for a rating upgrade trade post restructuring. …