Potential IPO Of BioMar Will Unlock Value And Boost Financial Flexibility

Key Takeaways

• Potential IPO of BioMar could unlock value, enhance financial flexibility, and boost revenue and innovation investments.
  
• Strategies to reduce net working capital and focus on profitability are expected to improve earnings, net margins, and cash flow efficiency.
  
• Revenue and profitability are under pressure across key portfolio companies, with significant declines in top-line growth and margins amidst challenging market conditions.

Catalysts

Operates as an industrial conglomerate in Denmark and internationally.

• The company is investigating a potential IPO of BioMar, its largest portfolio company, which could unlock value and improve the company's financial flexibility. This strategic move is likely to impact revenue and earnings positively by providing a platform for further expansion and innovation investments.
  
• The strong focus on reducing net working capital across its operations is expected to generate robust cash flow, which can then be used for investments and debt reduction. This strategy is likely to enhance earnings and potentially improve net margins by lowering interest costs and increasing financial efficiency.
  
• BioMar's strategy to prioritize profitability over sheer volume growth, along with continued focus on innovation in functional feed offerings, is expected to sustain strong EBITDA margins at the upper end of their long-term ambitions, thereby positively impacting net margins.
  
• GPV's upcoming implementation of a new IT system and footprint optimization, despite incurring one-off costs, aims to improve operational efficiencies and cost management in the future. This should support a recovery in EBITDA and net margins once completed.
  
• HydraSpecma's strategic push in renewables and preparation for future growth through footprint and cost adjustments is expected to sustain top-line growth and leverage synergy benefits from previous acquisitions, enhancing revenue and EBITDA over the coming years.

Aktieselskabet Schouw Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Aktieselskabet Schouw's revenue will grow by 2.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.7% today to 4.3% in 3 years time.
• Analysts expect earnings to reach DKK 1.6 billion (and earnings per share of DKK 80.54) by about March 2028, up from DKK 950.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting DKK1.8 billion in earnings, and the most bearish expecting DKK1.4 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.2x on those 2028 earnings, down from 15.8x today. This future PE is lower than the current PE for the GB Food industry at 20.6x.
• Analysts expect the number of shares outstanding to decline by 1.36% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 4.74%, as per the Simply Wall St company report.

Aktieselskabet Schouw Future Earnings Per Share Growth

Risks

• Revenue decreased by 7% in 2024, which suggests challenges in increasing top-line growth, potentially impacting future earnings.
  
• The top-line performance of BioMar, the largest company in the portfolio, was down by 17%, indicating pressure on revenue and profitability moving forward.
  
• GPV faced volatile markets and soft demand, resulting in a 15% decline in revenue and a 16% decline in EBITDA, highlighting risks to sustained revenue and margin improvement.
  
• Fibertex Personal Care encountered low margins in the Asian market, significantly impacting EBITDA by a 29% decrease, which could persistently hinder net margins.
  
• Borg was unable to fully offset increases in labor costs in Poland, posing risks to maintaining profitability and net margins in competitive environments.

Valuation

• The analysts have a consensus price target of DKK715.0 for Aktieselskabet Schouw 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 DKK37.2 billion, earnings will come to DKK1.6 billion, and it would be trading on a PE ratio of 11.2x, assuming you use a discount rate of 4.7%.
• Given the current share price of DKK654.0, the analyst price target of DKK715.0 is 8.5% higher. 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.