Reducing Wind Footprint And Investing In Niche Markets Will Strengthen Future Prospects

Key Takeaways

• Restructuring and resizing in wind and fiber operations focus on profitable markets, improving margins and earnings by eliminating loss-making segments.
  
• Investment in Marine and Industrial markets aims at revenue growth through specialized foams, recycled PET, and targeting high-value niche markets.
  
• Discontinuing carbon fiber business and halted recycled PET expansion suggests challenges ahead with tougher competition and limited market diversification.

Catalysts

Develops, manufactures, markets, and sells advanced composite materials, composite tooling equipment, and kitting services in Switzerland and internationally.

• Gurit is resizing its wind footprint to focus on profitable geographies, reducing sales to China, which could improve net margins and earnings by focusing on markets with higher profitability.
  
• The company is deploying an optimization tool for wind customers to reduce resin usage, cutting costs and potentially improving operating profit margins and future revenue.
  
• Discontinuing carbon fiber operations because of competition and overcapacity in China may enhance earnings by eliminating loss-making segments and concentrating on profitable glass fiber operations.
  
• Gurit's increased investment in Marine and Industrial markets, leveraging new specialized foams and recycled PET, is expected to increase revenue from high-value, high-growth niche markets.
  
• Strategic restructuring with significant cost-cutting measures and refinancing secured until 2028 aims to improve operating profit margins and generate positive free cash flow, enhancing future profitability.

Gurit Holding Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Gurit Holding's revenue will decrease by 0.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from -6.5% today to 3.5% in 3 years time.
• Analysts expect earnings to reach CHF 15.0 million (and earnings per share of CHF 3.21) by about March 2028, up from CHF -27.9 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CHF18.6 million in earnings, and the most bearish expecting CHF11.5 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.6x on those 2028 earnings, up from -2.8x today. This future PE is lower than the current PE for the GB Chemicals industry at 32.0x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.66%, as per the Simply Wall St company report.

Gurit Holding Future Earnings Per Share Growth

Risks

• The decision to discontinue the carbon fiber business due to heavy Chinese competition and overcapacity suggests potential revenue loss and indicates challenges in maintaining market share against competitors. This could negatively impact revenue and earnings.
  
• The stop in delivering recycled PET to new industrial segments, such as transportation or office furniture, could limit potential market expansion and diversification, potentially affecting future revenue growth.
  
• The absence of sales guidance due to tariff uncertainties can signal revenue unpredictability for investors, leading to potential volatility in future earnings and market confidence.
  
• Restructuring costs, which include significant impairment charges, have contributed to negative net profits, impacting both cash flow and net margins. Continued impact from these costs could affect financial stability and profitability.
  
• Chinese OEMs are expected to increase market share in regions like Eastern Europe, Latin America, and the Middle East, potentially leading to increased competition and affecting Gurit's revenue and market position in these regions.

Valuation

• The analysts have a consensus price target of CHF21.333 for Gurit 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 CHF30.0, and the most bearish reporting a price target of just CHF14.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CHF434.9 million, earnings will come to CHF15.0 million, and it would be trading on a PE ratio of 8.6x, assuming you use a discount rate of 6.7%.
  
• Given the current share price of CHF16.76, the analyst price target of CHF21.33 is 21.4% 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.