Microsoft Dynamics 365 And AI Rollout Will Improve Future Operational Efficiency

Key Takeaways

• The implementation of Microsoft Dynamics 365 and AI aims to boost efficiency, reduce costs, and improve profitability.
  
• Strategic acquisitions and service expansions in key industries are anticipated to drive revenue and strengthen market position.
  
• Sensitivity to global demand, investment-driven cost increases, and currency fluctuations pose risks to Bossard's revenue growth and financial stability.

Catalysts

Operates in the field of industrial fastening and assembly technology in Europe, the United States, and Asia.

• The implementation of the new ERP system, Microsoft Dynamics 365, across more business units is expected to increase operational efficiency, enhance transparency, and support future EBIT growth targets. This may positively impact net margins by reducing operational costs.
  
• The strategic acquisitions in 2024, such as Dejond Fastening in Belgium and Aero Negoce in France, are expected to strengthen Bossard's customer base in key growth industries like electric vehicles, aerospace, and railway, potentially boosting future revenue growth.
  
• The focus on and expansion of Smart Factory Logistics and Assembly Technology Expert services are anticipated to drive new product sales through enhanced customer services and logistics automation, contributing to revenue and gross margin improvements.
  
• The rollout of artificial intelligence applications, aimed at improving internal efficiency and customer experience, is expected to enhance cost management and operational effectiveness, potentially contributing to an increase in net margins and overall profitability.
  
• Bossard's investment in cybersecurity and digitalization, along with initiatives in the Strategy 200 plan, are set to solidify its operational foundation and market competitiveness, which could support higher earnings and improve the equity ratio over time.

Bossard Holding Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bossard Holding's revenue will grow by 6.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.7% today to 8.7% in 3 years time.
• Analysts expect earnings to reach CHF 104.1 million (and earnings per share of CHF 12.36) by about March 2028, up from CHF 67.1 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as CHF83.0 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.8x on those 2028 earnings, down from 23.1x today. This future PE is lower than the current PE for the GB Trade Distributors industry at 22.3x.
• 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 5.23%, as per the Simply Wall St company report.

Bossard Holding Future Earnings Per Share Growth

Risks

• The decline in net income from CHF 76.8 million to CHF 75.3 million, despite a solid EBIT, suggests that if such trends were to continue, it could negatively impact net margins.
  
• A decrease in sales by 7.7% in 2024 emphasizes sensitivity to global demand normalization, which could challenge revenue growth.
  
• With administrative expenses increasing by 7.4% due to ERP system investments, consistent augmentation without proportionate revenue growth could hurt earnings.
  
• Fluctuations in currency valuations, especially the appreciation of the Swiss franc, adversely impacted sales by 1.9%, a risk that could continue to impact revenue.
  
• The capital expenditure guidance of CHF 43 million primarily for ERP implementation and ESG initiatives indicates significant upfront costs; if not managed well, these investments could strain cash flow and financial stability.

Valuation

• The analysts have a consensus price target of CHF214.5 for Bossard Holding 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 CHF269.0, and the most bearish reporting a price target of just CHF175.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CHF1.2 billion, earnings will come to CHF104.1 million, and it would be trading on a PE ratio of 16.8x, assuming you use a discount rate of 5.2%.
  
• Given the current share price of CHF201.0, the analyst price target of CHF214.5 is 6.3% higher. 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.