New Leadership And SAP HANA 4 Implementation Set To Streamline Operations

Key Takeaways

• Leadership changes aim to enhance operational excellence and market position, potentially boosting revenue and net margins through strategic innovation.
  
• Digitalization and market expansion, particularly in emerging markets, are expected to drive efficiency, revenue growth, and profitability through cost reduction and new customer bases.
  
• The unexpected CEO change and challenges in major project business, currency volatility, and competitive pressures could impact Interroll's profitability and strategic goals.

Catalysts

Provides material handling solutions in Germany, rest of Europe, the Middle East, Africa, the United States, rest of the Americas, China, and rest of the Asia- Pacific.

• The change in CEO and leadership is planned to drive Interroll's long-term growth, with strategic and execution capabilities expected to enhance operational excellence and extend market position. This change is likely to impact revenue growth and potentially improve net margins through better strategic decisions and innovative product alignments.
  
• Interroll's focus on service business expansion, which currently comprises 11-12% of revenues, is anticipated to capture additional market opportunities, enhance customer relationships, and improve earnings due to the high-margin nature of service agreements.
  
• Investments in digitalization, specifically the SAP HANA 4 implementation and the development of standardized modules combining hardware and software, are set to drive operational efficiency and scalability. This could positively impact net margins by lowering operational costs and enhancing product offerings.
  
• The strategic entry into emerging markets such as India and the expansion in regions like Southeast Asia and South America are projected to capture new customer bases and drive revenue growth, supported by localized production and supply chains.
  
• The rebound in sectors like airport projects and the expected resurgence in e-commerce investments in the U.S. are forecasted to drive order intake and sales, thereby increasing Interroll's revenue and improving profit margins as these high-demand sectors recover.

Interroll Holding Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Interroll Holding's revenue will grow by 7.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.9% today to 12.0% in 3 years time.
• Analysts expect earnings to reach CHF 79.0 million (and earnings per share of CHF 92.38) by about April 2028, up from CHF 62.5 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 0.0x on those 2028 earnings, down from 22.8x today. This future PE is lower than the current PE for the GB Machinery industry at 17.7x.
• Analysts expect the number of shares outstanding to grow by 0.3% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 4.65%, as per the Simply Wall St company report.

Interroll Holding Future Earnings Per Share Growth

Risks

• The unexpected CEO change at Interroll, despite being framed as a strategic decision, can cause uncertainty and disrupt investor confidence, potentially impacting long-term strategic goals and profitability.
  
• The loss of major project business, particularly in the U.S. and Asian markets, has affected revenues; recovery depends on a substantial return to big-sized project orders, which remains uncertain.
  
• Currency fluctuations, especially the appreciation of the Swiss franc, continue to negatively impact top-line revenues, suggesting inherent financial volatility that could restrict future profitability growth.
  
• Although the company plans expansion in emerging markets like India, it requires significant investment and comes with execution risks that could pressure net margins if the investments do not yield expected returns.
  
• Interroll faces increased competition from Chinese firms, especially in Asia and Latin America, which might necessitate pricing strategies that could compress margins to maintain market share.

Valuation

• The analysts have a consensus price target of CHF2291.167 for Interroll 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 CHF2608.0, and the most bearish reporting a price target of just CHF2000.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CHF661.0 million, earnings will come to CHF79.0 million, and it would be trading on a PE ratio of 0.0x, assuming you use a discount rate of 4.6%.
• Given the current share price of CHF1720.0, the analyst price target of CHF2291.17 is 24.9% 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.