eRx Surge And International Expansion Poised To Elevate Revenue And Profit Margins

Key Takeaways

• Rapid expansion in new markets and tech-driven efficiencies suggest future revenue growth and improved profit margins.
  
• Growth in eRx and app-based strategies, along with international market penetration, strengthens revenue diversity and market position.
  
• Heavy reliance on the German eRx business, regulatory risks, and increased marketing costs could pressure margins and affect profitability.

Catalysts

Operates in online pharmacy business in the Netherlands, Germany, Italy, Belgium, Switzerland, Austria, and France.

• The expansion into new markets, such as the Czech Republic, is likely to enhance future revenue streams by better serving adjacent regions, particularly Austria, potentially leading to increased sales volumes.
  
• The fast-paced growth of the eRx (electronic prescription) business in Germany, with growth rates reaching over 100% in recent months, suggests a significant upward revenue trajectory and expanding market share moving forward.
  
• The focus on app-based service and marketing, leading to increased customer acquisition and retention, is expected to improve the efficiency of their operations, potentially enhancing net margins as customer engagement and basket sizes grow, while marketing costs may stabilize or decrease.
  
• The ongoing international growth, particularly in non-Rx, with over 20% growth expected this year, is projected to continue contributing positively to revenue as the brand strengthens its position in multiple markets, enhancing overall profitability through a diversified portfolio.
  
• Technological advancements and improved operational efficiencies, including procurement strategies and platform model impacts, are expected to sustain or improve gross margins, translating into healthier earnings over the long term.

Redcare Pharmacy Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Redcare Pharmacy's revenue will grow by 21.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from -1.1% today to 2.6% in 3 years time.
• Analysts expect earnings to reach €101.0 million (and earnings per share of €5.31) by about January 2028, up from €-24.6 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €117.5 million in earnings, and the most bearish expecting €16.5 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 33.9x on those 2028 earnings, up from -109.1x today. This future PE is greater than the current PE for the GB Consumer Retailing industry at 24.5x.
• Analysts expect the number of shares outstanding to decline by 2.18% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 4.26%, as per the Simply Wall St company report.

Redcare Pharmacy Future Earnings Per Share Growth

Risks

• The financial performance and growth are heavily reliant on the German eRx business, which could be subject to regulatory changes impacting revenues and margins.
  
• There is potential for reduced margins due to the sales mix shifting towards a higher proportion of lower-margin Rx sales, impacting overall profitability.
  
• Increased marketing expenditures to capture Rx market share may lead to pressure on EBITDA margins and overall earnings.
  
• International market growth is uneven and dependent on varied legislative landscapes, which could pose a risk to achieving desired revenue targets.
  
• The company's balance sheet management, including potential convertible bond actions, could impact financial stability and investor return expectations in the future.

Valuation

• The analysts have a consensus price target of €159.17 for Redcare Pharmacy 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 €202.0, and the most bearish reporting a price target of just €85.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €4.0 billion, earnings will come to €101.0 million, and it would be trading on a PE ratio of 33.9x, assuming you use a discount rate of 4.3%.
• Given the current share price of €131.7, the analyst's price target of €159.17 is 17.3% 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.