Restructuring And Smart Factory Focus Will Drive Future Earnings Recovery

Key Takeaways

• Bystronic's reorganization and focus on innovation are expected to improve efficiencies, operational margins, and drive revenue growth through advanced technologies.
  
• Strategic product development and dual branding aim to capture market share, boosting revenue by adapting to shifting market dynamics in key regions.
  
• Bystronic faces financial challenges with declining order intake and sales, exacerbated by economic uncertainties, overcapacity, and high costs impacting revenue and profit prospects.

Catalysts

Through its subsidiaries, engages in the provision of sheet metal processing solutions for cutting, bending, and automation worldwide.

• Bystronic has implemented a reorganization and restructuring program expected to result in annual structural savings of more than CHF 60 million, reducing overcapacities and improving operational efficiencies. This is anticipated to enhance net margins and earnings.
  
• The company is focusing on innovation, particularly in automation and smart factory functionalities, positioning itself to capitalize on future growth opportunities, which could drive revenue growth.
  
• Bystronic’s dual brand strategy and segment-focused product development aim to capture increased market share, especially in home markets like Europe, potentially boosting revenue as market dynamics shift.
  
• The focus on customer-centric solutions and new product developments, such as the mid-size bending cell and intelligent cutting process, are expected to attract more business and enhance future revenues.
  
• With the operational changes in place and a clearer organizational structure, Bystronic anticipates a rebound in order intake due to regained market share, which could positively influence net sales and future earnings.

Bystronic Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bystronic's revenue will grow by 3.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from -10.4% today to 5.5% in 3 years time.
• Analysts expect earnings to reach CHF 39.5 million (and earnings per share of CHF 11.32) by about March 2028, up from CHF -67.6 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 19.1x on those 2028 earnings, up from -9.6x today. This future PE is lower than the current PE for the GB Machinery industry at 19.7x.
• Analysts expect the number of shares outstanding to decline by 0.12% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 4.73%, as per the Simply Wall St company report.

Bystronic Future Earnings Per Share Growth

Risks

• The company reported a 21% decline in order intake and a 30% decrease in net sales for 2024 compared to the previous year, indicating a challenging business environment that could impact revenue and profits.
  
• Bystronic experienced an operating loss of CHF 84 million in 2024, which was largely attributed to overcapacities and high fixed costs, negatively impacting its earnings.
  
• The restructuring program resulted in restructuring expenses and impairment losses of CHF 47 million, further weakening its financial performance and impacting earnings.
  
• The ongoing economic uncertainties, a weak global economy, and a strong Swiss franc are expected to continue challenging Bystronic, leading to projections of lower net sales and a negative operating profit for 2025, impacting revenue and earnings.
  
• Bystronic's market challenges, including global production decline, geopolitical tensions, competitive pressures in the Chinese market, and reduced agricultural sector investment, have led to a decline in order intake across various regions, impacting the company's revenue and market share.

Valuation

• The analysts have a consensus price target of CHF328.75 for Bystronic 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 CHF365.0, and the most bearish reporting a price target of just CHF280.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CHF723.6 million, earnings will come to CHF39.5 million, and it would be trading on a PE ratio of 19.1x, assuming you use a discount rate of 4.7%.
  
• Given the current share price of CHF315.0, the analyst price target of CHF328.75 is 4.2% 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.