Shift Towards Higher-Margin Projects Expected To Improve Earnings Stability

Key Takeaways

• Strategic expansion in energy and pharma shows potential revenue and margin growth from higher demand and contract renewals.
  
• Geographical diversification and acquisitions, like Stork, drive revenue growth and margin expansion through enhanced services and operational scale.
  
• Challenges in key industries and regions, declining margins, and potential order volatility could negatively impact Bilfinger's future growth, revenue stability, and profitability.

Catalysts

Provides industrial services to customers in the process industry primarily in Europe, North America, and the Middle East.

• Strategic expansion and contract renewals in growing sectors such as energy and pharmaceuticals indicate stable revenue opportunities and potential margin improvements due to higher demand in these sectors.
  
• The introduction of the Bilfinger Service Effectiveness Analyzer is expected to enhance client value through efficiency improvements, leading to potential increases in revenue and margins as more clients adopt this digital tool.
  
• Strong performance in international markets, notably in the Middle East with new energy contracts, suggests growth in revenue through increased geographical diversification and sectoral penetration.
  
• The successful integration of acquisitions, such as Stork, which has already led to securing long-term partnerships, points to potential revenue growth and margin expansion from increased operational scale and enhanced service offerings.
  
• The shift towards higher-margin businesses and projects, with a focus on operational excellence and risk mitigation strategies, is anticipated to improve EBITA margins and overall earnings stability.

Bilfinger Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bilfinger's revenue will grow by 4.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.5% today to 4.3% in 3 years time.
• Analysts expect earnings to reach €246.1 million (and earnings per share of €6.62) by about March 2028, up from €178.0 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 12.5x on those 2028 earnings, down from 15.1x today. This future PE is lower than the current PE for the GB Commercial Services industry at 15.4x.
• Analysts expect the number of shares outstanding to grow by 0.09% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.34%, as per the Simply Wall St company report.

Bilfinger Future Earnings Per Share Growth

Risks

• The company faces challenges in the chemical and petrochemicals industry, particularly in Germany, due to regional differences and political uncertainty, which may hinder significant investments and thus affect future revenue and earnings.
  
• The EBITA margin in the International segment declined significantly, from 5.4% to 1.6%, due to increased risk provisions in North America, indicating potential profitability issues that could impact net margins.
  
• The order intake in Technologies showed a 30% decrease in Q4 2024, suggesting potential volatility and dependency on previous strong quarters, which might impact future revenue stability.
  
• The U.S. market could be affected by temporary governmental delays and administrative changes, potentially becoming more structurally long-term, leading to lower order intake and affecting top-line growth prospects.
  
• Cash conversion rates have been favorable recently due to advanced payments from strong order intake; however, there is an expectation that this will normalize, which might result in lower free cash flows in the future.

Valuation

• The analysts have a consensus price target of €71.25 for Bilfinger based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €5.7 billion, earnings will come to €246.1 million, and it would be trading on a PE ratio of 12.5x, assuming you use a discount rate of 5.3%.
• Given the current share price of €71.8, the analyst price target of €71.25 is 0.8% lower. 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.