Unpredictable Recovery Will Impact Revenue Projections In 2025

Key Takeaways

• Stagnant growth and cost pressures are expected to reduce earnings, impacting revenue projections and net margins.
  
• Investments in automation may not yield immediate returns, potentially affecting short-term net earnings.
  
• Long-term potential in Climate & Energy, dividends reflecting automation investment, and cost savings initiatives indicate future growth and improved margins amid current headwinds.

Catalysts

Operates as a sourcing and services company in electrical, heating and plumbing, ventilation, and climate and energy solutions in the Danish, Swedish, Norwegian, and Dutch markets.

• The company anticipates stagnant or less positive growth across all markets in 2025 due to unpredictable recovery, affecting revenue projections.
  
• An expected lower EBITDA margin for 2025, down from previous expectations, suggests a lower earnings outlook, primarily driven by continued cost pressures and limited ability to pass on costs due to market conditions.
  
• Salary inflation and the inability to pass on costs to the market are expected to contribute to increased SG&A expenses, potentially reducing net margins.
  
• Investments in automation and digitalization require significant capital expenditures, which may not immediately translate into revenue growth, potentially impacting net earnings in the short term.
  
• Revised ambitions for 2026 include a reduction in expected gains from new concepts, reflecting anticipated challenges in achieving higher profits, thus affecting future EBITDA growth.

Solar Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Solar's revenue will grow by 1.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 1.2% today to 1.1% in 3 years time.
• Analysts expect earnings to reach DKK 142.2 million (and earnings per share of DKK 19.36) by about March 2028, down from DKK 151.0 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 16.0x on those 2028 earnings, up from 12.7x today. This future PE is greater than the current PE for the GB Trade Distributors industry at 13.4x.
• 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 7.83%, as per the Simply Wall St company report.

Solar Future Earnings Per Share Growth

Risks

• The company's strategic focus area, Climate & Energy, saw a decline in revenue during the year under review, but Q4 posted an increase in residential sales and confirmed the long-term potential of heat pumps. This could indicate potential for growth in revenue in this segment.
  
• The Board of Directors proposes a dividend per share, reflecting significant investment in automation and digitalization, with major projects completing by 2026. This could improve operational efficiency and boost profitability, impacting net margins positively.
  
• Despite current headwinds, the Industry segment is expected to experience positive organic growth in 2025, particularly with subsegments showing a strong performance. This potential increase in sales stands to boost overall earnings.
  
• The installation segment is anticipated to benefit slightly from the green transition, and as new constructions may start recovering, future sales and revenue growth could be realized.
  
• The company managed to secure stronger-than-expected savings from cost reduction initiatives, which supported the EBITDA margin in 2024, suggesting that continued efficiency improvements could positively impact net margins moving forward.

Valuation

• The analysts have a consensus price target of DKK260.0 for Solar 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 DKK12.8 billion, earnings will come to DKK142.2 million, and it would be trading on a PE ratio of 16.0x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of DKK262.5, the analyst price target of DKK260.0 is 1.0% 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.