Decarbonization Efforts And Global Expansion Will Boost Future Prospects

Key Takeaways

• Strategic expansion in Europe, Canada, and Australia is expected to boost market share and drive revenue growth.
  
• Operational efficiency and underutilized capacity improvements could significantly enhance EBITDA margins as demand increases.
  
• Dependency on specific regional demand poses revenue risk, while U.S. operational delays and supply chain issues may challenge margin and liquidity targets.

Catalysts

Develops, manufactures, and distributes multi-megawatt onshore wind turbines worldwide.

• Nordex's record order intake in 2024 and a growing order book valued at €12.8 billion, with strong momentum in both the service and project business, suggests a positive outlook for future revenue growth.
  
• The service business is experiencing robust growth, with higher revenues and improved EBIT margins, and is expected to return to normal margin levels of around 18% to 19% in the next 12 to 18 months, likely contributing to overall net margin improvements.
  
• Nordex's strategic move to expand in Europe, Canada, and Australia, along with its potential re-entry into the U.S. market, is anticipated to drive revenue growth through the increased market share.
  
• The expectation of continued growth in electricity demand driven by decarbonization efforts and the need for energy independence supports the future growth of onshore wind, bolstering Nordex’s revenue prospects.
  
• The operational efficiency improvements and underutilized capacity provide Nordex with the opportunity to increase production efficiently as demand grows, potentially enhancing their EBITDA margins in future years.

Nordex Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Nordex's revenue will grow by 5.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.1% today to 3.3% in 3 years time.
• Analysts expect earnings to reach €285.2 million (and earnings per share of €1.21) by about March 2028, up from €8.8 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as €351 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.2x on those 2028 earnings, down from 418.8x today. This future PE is lower than the current PE for the GB Electrical industry at 19.0x.
• 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 6.28%, as per the Simply Wall St company report.

Nordex Future Earnings Per Share Growth

Risks

• The reliance on large order intakes from specific regions, such as Canada and Türkiye, could pose a risk if demand from these markets does not sustain at the same levels, potentially impacting future revenue projections.
  
• Any delays or underutilization in the U.S. market, particularly linked to the Iowa plant, could lead to increased operational costs and impact Nordex's net margins.
  
• The expectation of growth in order intakes and consequent sales might not materialize if geopolitical or economic uncertainties arise, which could negatively affect both revenue and earnings forecasts.
  
• The progress towards reaching the 8% EBITDA margin target could be affected by potential issues in order execution or supply chain disruptions, influencing net profit margins.
  
• Significant cash flow was generated in 2024, partially driven by changes in liabilities and provisions; any shifts in these financial maneuvers might lead to reduced free cash flow in subsequent years, influencing the company's liquidity and investment capacity.

Valuation

• The analysts have a consensus price target of €18.3 for Nordex 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 €22.6, and the most bearish reporting a price target of just €14.9.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €8.6 billion, earnings will come to €285.2 million, and it would be trading on a PE ratio of 18.2x, assuming you use a discount rate of 6.3%.
  
• Given the current share price of €15.65, the analyst price target of €18.3 is 14.5% 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.