Fertilizer And Biogas Projects Will Face Execution Risks While Long Term Demand Trends Improve

Catalysts

About Tessenderlo Group

Tessenderlo Group operates a diversified portfolio of agro, bio valorization, industrial, machinery and power generation businesses across Europe and North America.

What are the underlying business or industry changes driving this perspective?

• Although the joint venture to combine PB Leiner with Darling's Rousselot business aims to reshape Tessenderlo's collagen and gelatin operations, integration risk, plant closures and production incidents like the Argentina disruption could keep earnings from this activity uneven and limit any uplift to group EBITDA.
• While global demand for specialty fertilizers and efficient water use supports Tessenderlo's focus on sulfate of potash for dry and irrigated regions, sulfur availability issues, higher energy inputs for the Mannheim process and the need for substantial maintenance at the Ham plant could keep SOP margins under pressure and weigh on segment EBITDA.
• Even though the Cinis acquisition introduces a lower temperature, green energy SOP process that aligns with growing scrutiny of fertilizer carbon footprints, execution risk at a distressed asset and the need to build markets for byproduct salts may delay any positive contribution to revenue and earnings.
• Despite long term drivers such as housing needs and infrastructure renewal that support plastic pipe demand, the current weakness in European construction, permitting bottlenecks and higher PVC input costs could continue to constrain DYKA volumes and keep Industrial Solutions EBITDA subdued.
• Although Tessenderlo is expanding ferrochloride capacity and investing in biogas to electricity projects that align with tighter environmental regulation and decarbonisation of industrial inputs, the recent volume softness, pricing discipline to protect margins and significant ongoing CapEx mean returns on these projects may take time to lift group net margins and free cash flow.

Assumptions

How have these above catalysts been quantified?

• This narrative explores a more pessimistic perspective on Tessenderlo Group compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Tessenderlo Group's revenue will grow by 4.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -2.9% today to 3.1% in 3 years time.
• The bearish analysts expect earnings to reach €96.7 million (and earnings per share of €2.4) by about April 2029, up from -€81.1 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as €140.3 million.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 16.7x on those 2029 earnings, up from -15.0x today. This future PE is lower than the current PE for the GB Chemicals industry at 42.8x.
• The bearish analysts expect the number of shares outstanding to grow by 2.83% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.85%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The bearish analyst cohort is assuming 4.0% annual revenue growth for the next 3 years, helped by contributions from areas like Agro, biogas to electricity projects and the North American Defiance plant. If long term demand for specialty fertilizers, SOP in dry and irrigated regions and crop protection solutions stays resilient or improves, revenue could end up higher than expected, which could lift earnings and put upward pressure on the share price.
• The same analysts expect profit margins to move from a 2.9% loss today to 3.1% in 3 years, but management is actively working on cost competitiveness at the Ham SOP plant, restructuring PB Leiner, expanding higher margin Agro and rendering activities and increasing flexible EBITDA contributions from T Power. If these efforts lead to a more pronounced margin recovery than modeled, net margins and earnings could surprise positively.
• The planned joint venture combining PB Leiner with Darling’s Rousselot business, along with the acquisition of the Cinis SOP plant that uses a lower temperature, green energy process, could create a larger, more efficient collagen and gelatin platform and a differentiated, lower carbon SOP offering. If regulatory approvals complete on schedule and integration goes smoothly, the combined collagen unit and greener SOP could support higher long term EBITDA and earnings than the bearish case assumes.
• The group is finishing a wave of growth CapEx and has guided 2026 CapEx in a similar range to 2025 with a meaningful portion still directed to growth projects like expanded ferrochloride capacity and biogas power. If these long lived assets earn acceptable returns once ramped, the earnings base and free cash flow generation could be higher than the flat share price view implies.
• Management has already executed a share repurchase program and is exploring using €158 million of cash in a new investment vehicle for smaller, more liquid positions and minority stakes. If buybacks resume at attractive prices or the investment vehicle delivers incremental income over time, earnings per share and potentially the valuation multiple, including the P/E assumed at 16.7x for 2029, could move above the bearish framework that sits behind an expectation of a largely unchanged share price.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Tessenderlo Group is €20.0, which represents up to two standard deviations below the consensus price target of €26.0. This valuation is based on what can be assumed as the expectations of Tessenderlo Group's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €30.0, and the most bearish reporting a price target of just €20.0.
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be €3.1 billion, earnings will come to €96.7 million, and it would be trading on a PE ratio of 16.7x, assuming you use a discount rate of 6.8%.
• Given the current share price of €20.5, the analyst price target of €20.0 is 2.5% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.