Believer Meats Partnership Will Advance Cultivated Meat Production Technology

Key Takeaways

• Strategic initiatives in cultivated meat and service expansion could boost market share and improve margins, supporting revenue and earnings growth.
  
• Share buyback and order intake recovery signal confidence, potentially enhancing earnings per share and future sales growth.
  
• Investment restraints, currency volatility, and reduced liquidity may hinder GEA's growth, while capital employed inefficiencies threaten profitability despite promising partnerships.

Catalysts

Engages in the development and production of systems and components to the food, beverage, and pharmaceutical industries.

• The Mission 30 strategy aims for an organic sales CAGR of more than 5% up to 2030, with an expected EBITDA margin increase to 17-19%, which could drive future revenue and earnings growth.
  
• The strategic partnership with Believer Meats to enhance cultivated meat production technology is expected to increase market share in the alternative protein industry, potentially boosting future revenues.
  
• The expansion of the service business, with organic service sales growth of 11.1% year-over-year, is expected to contribute to higher future net margins due to the typically higher margin of service sales compared to new machine sales.
  
• The ongoing share buyback program represents up to 3.9% of the outstanding shares, which could enhance earnings per share (EPS) going forward and signal confidence in the company's valuation and financial health.
  
• Positive indicators of order intake recovery and broad-based industry demand suggest an improvement in sales growth, enhancing the company's revenue and profitability outlook for future periods.

GEA Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming GEA Group's revenue will grow by 4.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.6% today to 9.3% in 3 years time.
• Analysts expect earnings to reach €558.5 million (and earnings per share of €3.42) by about December 2027, up from €406.6 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.2x on those 2027 earnings, down from 20.1x today. This future PE is lower than the current PE for the GB Machinery industry at 24.4x.
• Analysts expect the number of shares outstanding to decline by 0.43% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.13%, as per the Simply Wall St company report.

GEA Group Future Earnings Per Share Growth

Risks

• Investment restraints from customers, particularly for large orders, may pose a risk to future revenue growth if they persist, impacting GEA's new machine sales.
  
• Fluctuations in foreign exchange rates have previously affected GEA's financial results, and continued volatility could negatively impact reported revenues and earnings.
  
• GEA’s net liquidity decreased amid ongoing share buyback programs and dividend payments, and any future liquidity constraints could limit investment in growth opportunities or shareholder returns.
  
• A significant increase in capital employed relative to EBIT led to a decline in return on capital employed, which could signal inefficiencies and impact future profitability.
  
• While the partnership with Believer Meats shows promise, any delays or issues in the development or commercialization of cultivated meat technology could affect revenue growth projections from this venture.

Valuation

• The analysts have a consensus price target of €50.63 for GEA Group 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 €58.0, and the most bearish reporting a price target of just €40.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be €6.0 billion, earnings will come to €558.5 million, and it would be trading on a PE ratio of 17.2x, assuming you use a discount rate of 5.1%.
• Given the current share price of €49.38, the analyst's price target of €50.63 is 2.5% 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.