Original-Research: Deutz AG (von Quirin Privatbank Kapitalmarktgeschäft): BUY

Classification of Quirin Privatbank Kapitalmarktgeschäft to Deutz AG

Order book and margin step-up make the 2028 path tangible

DEUTZ opened fiscal year 2026 with an important message: order intake +41.2% to EUR 771.0m, revenue +8.4% yoy to EUR 530.0m, adjusted EBIT +45.7% yoy to EUR 37.3m translating into an adjusted EBIT margin of 7.0% in the seasonally weakest opening quarter (Q1 2025: 5.2%). The 2026 guidance (revenue EUR 2.3-2.5bn, adjusted EBIT margin 6.5-8.0%) looks conservative against this Q1 run-rate. More importantly, the mid-term targets for 2028 (revenue EUR 3.2-3.4bn, EBIT margin 8-9%) gain operational substance for the first time. Engines is back above breakeven, Energy has been structurally enlarged by the Frerk acquisition, and the new Defense segment delivers a 13.1% margin. Following a change of analyst, we are raising our price target to EUR 14 (12), applied by our ROE/COE valuation approach, and confirm our Buy rating.

Key take-aways from Q1 results:

• Order intake is the real headline: +41.2% to EUR 771m means a book-to-bill of 1.45x. About EUR 145m comes from Frerk consolidation, the rest is organic plus engines market recovery. The order backlog of EUR 738.6m sits at an all-time high thus visibility for H1/H2 is secured.
• Margin step-up of +180bps yoy: The Future Fit cost programme is delivering visibly (target: EUR 50m in savings vs. 2024 by end of 2026; >EUR 25m already booked in 2025). Q1 is seasonally margin-light thus the 7.0% confirms that the 2026 margin band (6.5-8.0%) can realistically land in the upper third.
• DEUTZ Engines: Revenue EUR 306.7m (+5.3% yoy), EBIT EUR 11.5m vs. EUR -0.3m; margin 3.7% after -0.1%. Order intake jumped 26.0% yoy to EUR 373.2m. Implication for 2028: Engines is the earnings lever; a structural margin of 6-7% (vs. 3.7% in Q1) is the precondition for the group to reach 8-9%. Q1 shows the direction, but full scaling needs to follow in H2 2026 and 2027.
• DEUTZ Service: Revenue EUR 148.1m (+7.1% yoy), EBIT EUR 26.0m, margin 17.6% after 19.5%. The slight margin decline is intentional: investments into expanding US Power Centers and regional growth initiatives. Order intake +12.5% yoy, driven by both organic and inorganic growth (DEUTZ Turkey, OnSite Diesel, Double Down Heavy Repair). With a 27.9% revenue share and a disproportionate EBIT contribution, Service remains the key cash and margin stabiliser.
• DEUTZ Energy: Revenue EUR 50.8m (+30.6% yoy), order intake EUR 206.7m (+202.2% yoy) thanks to Frerk consolidation; ~EUR 145m of which is Frerk alone. The margin drops to 6.5% (prior year 17.7%), driven by (a) deferral of larger US GenSet projects, (b) mix effect in the order book, and (c) seasonally unrepresentative Frerk contribution in the first two months of consolidation. Management expects materially higher revenue and earnings contributions from Q2 onwards. Strategic point: Frerk gives Deutz access to the rapidly growing data-centre backup power market; AI-driven structural tailwind. This is the most important new growth driver towards 2028/2030.
• DEUTZ NewTech: Revenue EUR 2.3m, EBIT EUR -6.4m (prior year EUR -12.0m). The halving of the loss comes from rigorous R&D focus: NewTech net R&D spending fell from EUR 8.0m to EUR 4.3m; UMS integration and the joint 800V development are the priorities; the hydrogen engine programme was scaled back. Market demand remains weak (higher TCO of battery-electric systems), and the focus is on loss minimisation rather than forced scaling.
• Defense & Other: Revenue EUR 22.1m (+15.7% yoy), EBIT EUR 2.9m, margin 13.1%. The SOBEK acquisition (electric drives for drones, motorsport, medical, aerospace) plus HJS Emission Technology form the base. Strategic investments into ARX Robotics (unmanned land vehicles) and TYTAN Technologies (counter-drone systems) are financially reflected in Q1 but not yet earnings-relevant. Orders for electric drives for military drones are scheduled for delivery later in the year.

The path to 2028 targets – Our reality check
The 2028 targets in summary: Revenue EUR 3.2-3.4bn and adjusted EBIT margin 8-9% implying EBIT of EUR 256m to EUR 306m (midpoint ~EUR 281m). As a reminder: the 2030 vision is EUR 4.0bn revenue at a 10% margin.
Starting base FY 2025: EUR 112m adjusted EBIT / 5.5% margin. Target FY 2028 (midpoint): ~EUR 281m EBIT; i.e. around +EUR 170m in additional EBIT over three years, or roughly a 2.5x step-up.

The positive read from Q1 2026 results:

• Margin step-up is real: 5.2% vs 7.0% in Q1 2026 = +180bps. At this pace, the group lands at 8.5-9% in 2028; i.e. the upper half of the target corridor. Future Fit still has unrealised effects for 2026/27.
• Order book secures the top line: Book-to-bill 1.45x, order backlog EUR 738.6m. Market recovery in Engines (construction, agri) is materialising in 2026.
• Portfolio transformation is measurable: Energy & Defense already deliver structurally higher margins than the classic engines business.

You can download the research here: DEUTZ_AG_20260512

For additional information visit our website: https://research.quirinprivatbank.de/

Contact for questions:
Quirin Privatbank AG
Institutionelles Research
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60313 Frankfurt am Main
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https://research.quirinprivatbank.de/