Open Access Expansion And New Nature Titles Will Support Long Term Earnings Potential

Catalysts

About Springer Nature KGaA

Springer Nature KGaA is a global research, education and professional publisher that advances discovery and learning through journals, books and services for the scientific, health and education communities.

What are the underlying business or industry changes driving this perspective?

• Accelerating shift toward open access publishing, including public access mandates in the United States and strong submission growth in Full OA, should support high-single to double digit article volume growth and sustain above-market revenue expansion in Research.
• Ongoing deployment of proprietary technology platforms such as Snapp, T Rex and AI enabled tools like Nature Research Assistant is increasing editorial throughput and transfer efficiency, which should enhance scalability, widen operating leverage and support further AOP margin improvement.
• Expansion of the Nature branded portfolio into new high impact titles such as Nature Health and Nature Sensors strengthens pricing power and upsell potential with institutions, which is likely to underpin resilient yields and mix driven growth in group earnings.
• Rising global research output from geographies such as India and China, combined with Springer Nature's targeted investments and higher submission share in these markets, should drive incremental market share gains and diversify revenue growth over the medium term.
• Stronger balance sheet with lower leverage, an investment grade rating and improved free cash flow generation creates capacity for disciplined capital allocation, which can support earnings per share growth through reduced interest expense and potential shareholder returns or selective portfolio investments.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Springer Nature KGaA's revenue will grow by 3.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.8% today to 14.0% in 3 years time.
• Analysts expect earnings to reach €293.7 million (and earnings per share of €1.58) by about December 2028, up from €164.5 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as €405.7 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 22.3x on those 2028 earnings, up from 22.2x today. This future PE is lower than the current PE for the DE Media industry at 29.6x.
• 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 5.16%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• U S and broader public funder initiatives to cap article processing charges at bodies such as the NIH could structurally limit pricing power in Full Open Access and compress yields on article volumes, putting downward pressure on Research revenue growth and group earnings over time.
• Long term FX headwinds from a weaker U S dollar and emerging market currencies relative to the euro could intensify as renewal cycles reset at less favorable rates, eroding reported revenue growth, adjusted operating profit and free cash flow despite solid underlying performance.
• Persistent funding constraints and curriculum delays in key Education markets such as South Africa, combined with hyperinflation and currency volatility in Argentina and other Latin American countries, may turn Education into a recurring drag on group revenue and net margins rather than a modest growth contributor.
• As open access markets mature and newer OA competitors regain trust and scale, Springer Nature's current above market submission and article growth in Full Open Access may normalize, slowing market share gains and limiting the uplift to Research revenue growth and operating margins in the medium term.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of €28.33 for Springer Nature KGaA 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 €31.2, and the most bearish reporting a price target of just €25.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be €2.1 billion, earnings will come to €293.7 million, and it would be trading on a PE ratio of 22.3x, assuming you use a discount rate of 5.2%.
  
• Given the current share price of €18.34, the analyst price target of €28.33 is 35.3% 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.