Focus On Integrated Customer Relationships And Non-Dairy Vegan Ice Will Improve Future Performance

Key Takeaways

• Strategic focus on integrated customer relationships in the Fresh segment and cost streamlining are expected to drive revenue and improve net margins.
  
• Investments in production capacity, sustainability initiatives, and niche acquisitions aim to enhance earnings and support efficient growth.
  
• Financial challenges include restructuring costs, higher depreciation, inventory, acquisition pressures, geopolitical issues, yield impacts, and labor costs, potentially affecting margins and growth.

Catalysts

Supplies fresh, frozen, and prepared fruit and vegetables, flowers, and plants in Germany, the Netherlands, Belgium, the United Kingdom, France, the rest of Europe, and internationally.

• Greenyard's strategic focus on integrated customer relationships (ICR) within the Fresh segment aims to enhance market share with key retail partners, which is expected to drive top-line revenue growth.
  
• Ongoing restructuring efforts and cost streamlining measures are anticipated to improve operational efficiency and increase net margins over the next fiscal period.
  
• Greenyard's investments in expanding production capacity and upgrading packaging technology in the Long Fresh segment are likely to support revenue growth and improve net margins by leveraging more modern and cost-effective production methods.
  
• The acquisition of Creme de la Creme and emphasis on volume growth in promising niches like non-dairy vegan ice are poised to enhance future earnings and net margins, given the high-margin nature of these product segments.
  
• Greenyard's commitment to sustainability and operational excellence, including renewable energy projects and water usage reduction initiatives, is projected to lower operational costs and indirectly support earnings growth through improved financial efficiency.

Greenyard Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Greenyard's revenue will grow by 2.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.1% today to 1.1% in 3 years time.
• Analysts expect earnings to reach €63.9 million (and earnings per share of €0.8) by about February 2028, up from €7.9 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 6.4x on those 2028 earnings, down from 31.9x today. This future PE is lower than the current PE for the GB Food industry at 20.0x.
• Analysts expect the number of shares outstanding to decline by 0.85% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.88%, as per the Simply Wall St company report.

Greenyard Future Earnings Per Share Growth

Risks

• The decrease in net results due to restructuring costs and higher depreciation suggests short-term financial strain, which may impact net margins and earnings.
  
• Challenges from increased inventories and acquisition costs, such as those related to Creme de la Creme, put pressure on cash flow and working capital management, potentially affecting financial health and revenue growth.
  
• The ongoing geopolitical and supply chain difficulties, along with adverse weather conditions affecting production yields, could continue to negatively impact revenue and profit margins.
  
• Despite sales growth, the Long Fresh segment's decreased volume sales and potential over-reliance on price increases could indicate underlying demand issues, risking revenue stability.
  
• Elevated production costs due to lower product yields and ongoing labor costs tied to quality issues might compress margins further, impacting overall profitability.

Valuation

• The analysts have a consensus price target of €6.79 for Greenyard based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €7.5, and the most bearish reporting a price target of just €6.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €5.7 billion, earnings will come to €63.9 million, and it would be trading on a PE ratio of 6.4x, assuming you use a discount rate of 7.9%.
  
• Given the current share price of €5.12, the analyst price target of €6.79 is 24.6% 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.