Oracle ERP Deployment And New Contracts Will Improve Efficiency And Stability

Key Takeaways

• Tegma's deployment of Oracle ERP and storage capacity expansion supports technological innovation, cost efficiency, and enhanced service capabilities, potentially boosting revenue and margins.
  
• Positive automotive market trends and new logistics contracts suggest potential revenue growth in Tegma's Automotive and Integrated Logistics divisions.
  
• Tegma faces challenges with interest rates, logistics volume, cost efficiency, and investor caution, affecting revenue, margins, and stock valuation.

Catalysts

Provides logistics management, transportation, and storage services in Brazil.

• Tegma's recent deployment of Oracle's ERP system enhances its pursuit of technological innovation and process efficiency. This advancement is expected to foster new business models and improve customer interactions, likely impacting revenue and net margins by improving efficiency and reducing costs.
  
• The positive outlook for Brazil's automotive market, driven by domestic sales and exports growth due to economic conditions and favorable automotive credit indicators, suggests a potential for increased revenue in Tegma's Automotive Logistics division.
  
• The growth in Tegma's market share in the automotive logistics sector, alongside the increase in average distance traveled for vehicle transport, is likely to boost revenue and operational efficiency, thereby enhancing net margins.
  
• Tegma's investment in expanding storage capacity near the port of Suape-PE indicates a strategic move to accommodate more imported vehicles, which could lead to increased revenue through enhanced service capabilities.
  
• The Integrated Logistics division's growth through new contracts and expanded services with major clients in the household appliances sector points to a new avenue for revenue growth and improved earnings stability in this segment.

Tegma Gestão Logística Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Tegma Gestão Logística's revenue will grow by 11.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.3% today to 12.6% in 3 years time.
• Analysts expect earnings to reach R$332.5 million (and earnings per share of R$4.98) by about February 2028, up from R$235.8 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 13.0x on those 2028 earnings, up from 9.1x today. This future PE is greater than the current PE for the BR Transportation industry at 7.6x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 18.57%, as per the Simply Wall St company report.

Tegma Gestão Logística Future Earnings Per Share Growth

Risks

• The recent increase in interest rates, both SELIC and future rates, may eventually result in higher auto loan rates, potentially affecting vehicle sales and subsequently impacting revenue and earnings of Tegma.
  
• The chemicals operation experienced reduced volumes due to fewer ships arriving, impacting the Integrated Logistics division's revenue growth and potentially affecting net margins in the future.
  
• The decline in EBITDA margin from 30.2% to 26.6% in the Integrated Logistics division signifies challenges in maintaining cost efficiency, which could pressure earnings and profitability if not addressed.
  
• The retroactive adjustment of rental contracts increased costs, compressing net margins, which may lead to volatility in earnings if similar cost adjustments occur unexpectedly.
  
• Although Tegma's shares outperformed indices recently, the stock continues to trade below historical average multiples, suggesting investor caution which could impact future valuation and stock performance.

Valuation

• The analysts have a consensus price target of R$39.85 for Tegma Gestão Logística 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 R$44.0, and the most bearish reporting a price target of just R$35.7.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be R$2.6 billion, earnings will come to R$332.5 million, and it would be trading on a PE ratio of 13.0x, assuming you use a discount rate of 18.6%.
  
• Given the current share price of R$32.58, the analyst price target of R$39.85 is 18.2% 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.