Efficiency Initiatives Like The Step Up Program Will Improve Future Productivity

Key Takeaways

• Step Up program initiatives are boosting operational efficiency and potentially improving future margins and earnings through widespread implementation.
  
• Strategic acquisitions and expanding into new markets are set to drive revenue growth and enhance EBIT margins in key sectors.
  
• Weak automotive demand and currency impacts, coupled with economic and tax challenges, risk hampering NORMA Group's revenue growth and profitability.

Catalysts

Manufactures and sells engineered joining technology solutions in Europe, the Middle East, Africa, the Americas, and the Asia-Pacific.

• The Step Up program aims to make NORMA Group's operations more efficient and productive, with over 1,800 initiatives identified and 2/3 already in the implementation phase, potentially improving future margins and earnings.
  
• Targeted growth in Industry Applications and Water Management businesses, combined with strategic acquisitions, could lead to increased revenue and EBIT margins in these sectors, aiming for 15% to 20% margins over time.
  
• Efficiency measures, such as reducing staffing inefficiencies and optimizing production processes, have already helped increase margins this year and are expected to continue benefiting future profitability and net margins.
  
• The company is focusing on expanding its customer base and entering new markets, such as supplying TORRO clamps for household appliances, which could drive revenue growth by expanding their market presence outside traditional segments.
  
• Price negotiations with customers, coupled with decreasing material and logistics costs relative to sales, have led to improved margins. Continuation of these pricing strategies is expected to support future profitability and net margins.

NORMA Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming NORMA Group's revenue will grow by 2.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.0% today to 5.0% in 3 years time.
• Analysts expect earnings to reach €63.8 million (and earnings per share of €2.0) by about February 2028, up from €23.5 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 11.9x on those 2028 earnings, down from 20.7x today. This future PE is lower than the current PE for the GB Machinery industry at 16.2x.
• 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 7.46%, as per the Simply Wall St company report.

NORMA Group Future Earnings Per Share Growth

Risks

• The automotive industry's continued weakness, particularly in EMEA and APAC, due to low demand and uncertainty in e-mobility vs. traditional vehicles, poses a risk to the company's revenue and overall sales growth.
  
• Currency effects, particularly negative impacts in the Americas and EMEA regions, have reduced sales figures, which could continue to impact revenue negatively if currency fluctuations persist.
  
• The structural economic challenges in key regions, such as China's lagging economic recovery and weak demand from sectors like the automotive industry, could hamper future revenue growth.
  
• Lower-than-expected volumes, especially in the Mobility & New Energy sector and APAC region, result in reduced profitability from underutilization of production capacities, affecting overall earnings.
  
• High tax rates due to unrecognized deferred tax assets and nondeductible expenses, coupled with a lower net financial result, impair net margins and earnings potential.

Valuation

• The analysts have a consensus price target of €19.714 for NORMA 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 €27.0, and the most bearish reporting a price target of just €14.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €1.3 billion, earnings will come to €63.8 million, and it would be trading on a PE ratio of 11.9x, assuming you use a discount rate of 7.5%.
  
• Given the current share price of €15.24, the analyst price target of €19.71 is 22.7% 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.