Global Expansion And Customer Engagement Initiatives Will Drive Future Success

Key Takeaways

• Avolta's expansion in commercial and digital spaces, along with geographic growth in key regions, aims to boost customer engagement and revenue.
  
• Shareholder value focus is evident through loyalty programs, share buybacks, and increased dividends, with financial stability enhanced by deleveraging efforts.
  
• Political instability and external factors, including weather and geopolitical issues, could lead to revenue volatility and pressure on Avolta's growth and earnings consistency.

Catalysts

Operates as a travel retailer company.

• Avolta plans to continue deleveraging, aiming for a net debt to EBITDA ratio of 1.5 to 2x, which would increase financial stability and potentially enhance earnings by reducing interest expenses.
  
• The company's focus on transforming commercial and digital spaces, such as introducing hybrid concepts and enhancing customer engagement through entertainment, aims to increase customer footfall and spend per passenger, positively impacting revenue growth.
  
• Avolta's loyalty program, Club Avolta, is being expanded and has already shown that members spend 3x the average purchase value, indicating potential for increased revenue from repeat customers as the program grows.
  
• The company is targeting geographic expansion, especially in regions with new business developments like Saudi Arabia, Tunisia, and additional U.S. airports, which could contribute to higher future revenues.
  
• The ongoing share buyback program and proposed dividend increase suggest a focus on returning value to shareholders while potentially improving earnings per share through reduced share count.

Avolta Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Avolta's revenue will grow by 4.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.8% today to 2.0% in 3 years time.
• Analysts expect earnings to reach CHF 319.3 million (and earnings per share of CHF 2.53) by about April 2028, up from CHF 103.0 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 27.4x on those 2028 earnings, down from 52.6x today. This future PE is lower than the current PE for the GB Specialty Retail industry at 50.9x.
• Analysts expect the number of shares outstanding to grow by 0.96% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.02%, as per the Simply Wall St company report.

Avolta Future Earnings Per Share Growth

Risks

• The political instability in regions like Asia Pacific, coupled with the ongoing impacts of geopolitical events such as the Ukraine war and Middle East crises, may affect Avolta's regional revenues and overall earnings consistency.
  
• The dependency on external factors like weather conditions in North America and restricted airspace due to geopolitical issues in the Nordics could lead to volatility in revenue and impact net margins.
  
• Potential delays in plane deliveries and capacity constraints in North America could limit growth, ultimately affecting earnings and cash flow projections.
  
• Currency fluctuations, particularly in regions like Argentina, can artificially inflate or deflate revenue figures, posing risks to consistent organic growth and impacting financial forecasts.
  
• The increasing competitive landscape and potential inefficiencies in new hybrid retail formats could offset expected revenue synergies and put pressure on achieving projected EBITDA margins.

Valuation

• The analysts have a consensus price target of CHF45.313 for Avolta 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 CHF58.0, and the most bearish reporting a price target of just CHF29.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CHF15.8 billion, earnings will come to CHF319.3 million, and it would be trading on a PE ratio of 27.4x, assuming you use a discount rate of 9.0%.
• Given the current share price of CHF37.3, the analyst price target of CHF45.31 is 17.7% 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.