US And Poland Facility Expansion Will Fuel Sustainable Demand

Key Takeaways

• Expansion in healthcare and cleantech segments, supported by new facilities and ESG trends, positions SP Group for higher and more stable long-term growth.
  
• Operational improvements and geographic diversification are enhancing margins, resilience, and access to high-growth markets amid shifting global conditions.
  
• The company faces revenue and margin pressure due to declining plastics demand, weak organic growth, high CapEx needs, and rising competition from sustainable alternatives.

Catalysts

Manufactures and sells moulded plastic and composite components in Denmark, rest of Europe, the Americas, Asia, the Middle East, Australia, and Africa.

• The company is rapidly expanding capacity in its medical/healthcare segment (notably with cleanroom investments in Poland and new US/Atlanta facilities), positioning itself to capture increasing demand from the healthcare sector driven by aging populations, rising global healthcare spend, and the need for specialized plastic components-supporting higher top-line growth and improved margins over the medium to long term.
  
• SP Group's strategic focus on cleantech and renewable energy solutions (25% of revenue) aligns with the accelerating global energy transition and electrification, which is expected to spur infrastructure investments and demand for advanced, energy-efficient components, likely supporting a return to revenue growth as postponed projects resume.
  
• Recent investments in operational efficiency-such as complexity reduction (factory mergers, process simplification) and improved capacity utilization-are already contributing to margin improvements and are expected to drive further net margin enhancement through lower costs and increased throughput as the company scales.
  
• The growing share of revenues from projects and products in ESG-friendly sectors (cleantech, healthcare, and potentially defence/energy-related industries) positions SP Group to benefit from tightening global ESG investment mandates, likely supporting both revenue expansion and more stable/attractive earnings quality as client demand shifts toward sustainable solutions.
  
• The geographic diversification strategy, including the ramp-up of US-localized production and expansion in Poland, mitigates risks from global trade tensions and tariffs, enhances access to high-growth markets, and is expected to yield higher and more resilient earnings as SP Group leverages cross-regional demand trends.

SP Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SP Group's revenue will grow by 4.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.7% today to 11.5% in 3 years time.
• Analysts expect earnings to reach DKK 380.2 million (and earnings per share of DKK 30.99) by about August 2028, up from DKK 251.5 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.7x on those 2028 earnings, down from 12.8x today. This future PE is lower than the current PE for the GB Chemicals industry at 16.8x.
• Analysts expect the number of shares outstanding to decline by 0.93% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.91%, as per the Simply Wall St company report.

SP Group Future Earnings Per Share Growth

Risks

• The company's core business as a global manufacturer of plastic solutions faces long-term risks from global regulatory and consumer trends moving away from plastics due to rising regulation against plastic use and carbon emissions, which could erode long-term demand and negatively impact revenues and volume growth.
  
• Declining revenues and margins across key sectors (Healthcare, Cleantech, FoodTech) in the most recent period signal difficulty offsetting weaknesses in core plastics segments, potentially reflecting the company's persistent reliance on legacy materials at a time when the shift towards circular economy and green alternatives is accelerating-threatening future revenue and net margins.
  
• Ongoing declines in sales of own-branded products (down 11.5% first half) and general earnings contraction (earnings per share down 6.2% for the half, EBT down 6.7%) despite cost discipline and restructuring raise concern about the company's ability to generate organic growth, impacting both top-line growth and future earnings quality.
  
• High capital expenditure requirements for capacity expansion in medical and cleanroom production, coupled with the company's CapEx-driven business model, may pressure free cash flows and return on invested capital, especially if new facilities take longer to become profitable or core market demand weakens further-putting net margin and ROIC at risk.
  
• The company's exposure to postponements and hesitancy in large customer orders (noted as a major drag in recent quarters), combined with industry oversupply risks in basic polymers and increasingly rapid innovation from bio-based/advanced recycling competitors, could increase earnings volatility and erode market share, ultimately depressing revenue and profitability.

Valuation

• The analysts have a consensus price target of DKK370.0 for SP Group 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 DKK3.3 billion, earnings will come to DKK380.2 million, and it would be trading on a PE ratio of 12.7x, assuming you use a discount rate of 5.9%.
  
• Given the current share price of DKK269.0, the analyst price target of DKK370.0 is 27.3% 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.