Expanding Rubber Reinforcement Capacity In Indonesia And India Will Strengthen Future Presence

Key Takeaways

• Focus on cost structure optimization and divestment from low-margin sectors to improve net margins and earnings through strategic resource allocation.
  
• Investment in growth regions and sustainable technologies to drive long-term revenue increases and market positioning through strategic production expansion and acquisitions.
  
• Operational and market challenges, including competition and policy uncertainties, threaten NV Bekaert's growth, profitability, and strategic expansion in key segments.

Catalysts

Provides steel wire transformation and coating technologies worldwide.

• Bekaert's focus on mix improvement and cost structure optimization is expected to drive higher net margins, particularly as they divest commoditized businesses and focus on higher-margin applications.
  
• Expanding production capacity in growth regions like Indonesia and India for Rubber Reinforcement could lead to increased revenue as local demand rises.
  
• Continued investment in hydrogen and sustainable construction despite current near-term challenges suggests potential long-term growth in both revenue and innovation-driven net margins.
  
• Optimization of operational footprint and strategic divestments, such as those in Latin America, are likely to improve overall earnings by focusing resources on higher-performing segments.
  
• The company is capitalizing on strategic acquisitions in synthetics, which can increase revenue and potentially enhance net margins, due to integration with existing operations and improved market positioning.

NV Bekaert Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming NV Bekaert's revenue will grow by 3.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.0% today to 7.1% in 3 years time.
• Analysts expect earnings to reach €307.7 million (and earnings per share of €5.88) by about March 2028, up from €238.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.5x on those 2028 earnings, up from 7.6x today. This future PE is lower than the current PE for the GB Metals and Mining industry at 12.5x.
• Analysts expect the number of shares outstanding to decline by 0.21% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.24%, as per the Simply Wall St company report.

NV Bekaert Future Earnings Per Share Growth

Risks

• Lower sales in 2024 were attributed to weaker end markets and a decrease in passed-on material and energy costs, which impacted revenues and overall profitability.
  
• There is intensifying competition in the global tire market, particularly affecting European sales volumes and margins, posing a risk to future revenue and EBIT margins in the Rubber Reinforcement segment.
  
• Project cancellations and policy uncertainties in the Hydrogen Business have led to slower-than-expected progress and investments, potentially impacting future growth and earnings.
  
• The company is facing operational challenges in some segments, with specific issues in Europe and North America that could impact operating margins if not managed effectively.
  
• Delays in investments and policy changes in the energy transition markets could affect future revenue growth and earnings, as these are critical areas for long-term strategic expansion.

Valuation

• The analysts have a consensus price target of €44.5 for NV Bekaert 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 €55.0, and the most bearish reporting a price target of just €35.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €4.3 billion, earnings will come to €307.7 million, and it would be trading on a PE ratio of 9.5x, assuming you use a discount rate of 8.2%.
  
• Given the current share price of €34.62, the analyst price target of €44.5 is 22.2% 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.