Sucuriú Project's Launch Will Expand Pulp Capacity Amid Market Risks

Key Takeaways

• Strategic advancements in electromobility and electric stations in Chile aim to strengthen long-term growth amid expanding electric vehicle markets.
  
• Acquisitions in Spain and Portugal, coupled with efficient cost management, are expected to boost revenues and enhance profit margins.
  
• Declining pulp prices, volatile energy market conditions, high financial leverage, and global tariffs pose significant risks to Empresas Copec's future revenue and earnings stability.

Catalysts

Operates in the natural resources and energy sectors in Chile and internationally.

• The launch and progress of the Sucuriú project is expected to drive future growth by expanding production capacity in the pulp sector, potentially increasing revenue and EBITDA.
  
• Abastible's acquisition of Gasib assets in Spain and Portugal is predicted to provide stable cash flows and strong synergies with energy transition practices, likely improving revenue and net margins.
  
• The systematic hedging of costs and favorable currency positions for projects like Sucuriú could potentially lead to cost efficiencies and margin improvements, impacting net earnings positively.
  
• The company's strategic developments in electromobility and the establishment of a 100% electric station in Chile are poised to bolster long-term growth, possibly enhancing revenue as the market for electric vehicles expands.
  
• The expansion of Mina Justa and its potential impact on the life of the mine could provide sustained production levels, contributing positively to earnings through increased revenue and lower cash costs.

Empresas Copec Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Empresas Copec's revenue will grow by 2.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 4.0% today to 2.2% in 3 years time.
• Analysts expect earnings to reach $673.0 million (and earnings per share of $0.4) by about March 2028, down from $1.1 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.0 billion in earnings, and the most bearish expecting $473 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.3x on those 2028 earnings, up from 8.3x today. This future PE is greater than the current PE for the CL Specialty Retail industry at 9.9x.
• 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 14.53%, as per the Simply Wall St company report.

Empresas Copec Future Earnings Per Share Growth

Risks

• The significant drop in pulp prices towards the end of 2024 presents a risk to Empresas Copec's future revenue and profit margins, especially if the trend continues or worsens over time.
  
• The volatility in the industrial segment of the energy market, exacerbated by competitive pressures and potential new market entries, could negatively impact net margins and earnings stability.
  
• The unpredictable impact of global tariffs, such as potential import duties from the U.S. on wood and pulp, could lead to increased costs and reduced demand, affecting revenue and profitability.
  
• High financial leverage due to large-scale projects like Sucuriú may restrict the company's ability to invest in other growth opportunities, potentially impacting future earnings growth.
  
• The fluctuating costs and earnings from subsidiaries like Mina Justa, susceptible to nonrecurring factors like temporary low cash costs, could create earnings unpredictability and pressure on net margins.

Valuation

• The analysts have a consensus price target of CLP7542.677 for Empresas Copec 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 CLP9687.4, and the most bearish reporting a price target of just CLP6764.83.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $30.0 billion, earnings will come to $673.0 million, and it would be trading on a PE ratio of 23.3x, assuming you use a discount rate of 14.5%.
  
• Given the current share price of CLP6750.0, the analyst price target of CLP7542.68 is 10.5% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• 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.