Cost-saving Measures And Aftermarket Expansion Will Strengthen Future Profitability In The Pool Industry

Key Takeaways

• Fluidra's simplification program and cost-saving measures aim to expand margins and stabilize earnings against potential tariffs.
  
• Investment in digitalization and innovative products is expected to drive long-term growth and enhance market leadership in the pool industry.
  
• Fluidra faces potential challenges from geopolitical and macroeconomic uncertainties, rising operating expenses, regional market weaknesses, and currency fluctuations impacting margins and financial stability.

Catalysts

Manufactures, distributes, and markets accessories and machinery for swimming-pools, irrigation and water treatment, and purification for residential and commercial pool market worldwide.

• Fluidra's simplification program is expected to deliver significant cost savings, leading to margin expansion and potentially improving future net margins and earnings.
  
• The company is focused on gaining market share in the resilient aftermarket sector, which can provide a steady stream of revenue growth and enhance profitability.
  
• Strategic supply chain adjustments and cost-saving measures are planned to offset potential tariff impacts, which could protect gross margins and stabilise earnings.
  
• Fluidra's investment in digitalization and innovative product offerings could drive long-term revenue growth and improve operational efficiencies, impacting both sales and net margins positively.
  
• The company anticipates opportunities for organic and inorganic growth, such as bolt-on acquisitions, which can bolster revenue and expand market leadership in the pool industry.

Fluidra Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Fluidra's revenue will grow by 4.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.4% today to 11.3% in 3 years time.
• Analysts expect earnings to reach €277.8 million (and earnings per share of €1.48) by about April 2028, up from €138.1 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €341 million in earnings, and the most bearish expecting €244 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.0x on those 2028 earnings, down from 27.2x today. This future PE is greater than the current PE for the GB Machinery industry at 11.9x.
• 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 9.46%, as per the Simply Wall St company report.

Fluidra Future Earnings Per Share Growth

Risks

• Fluidra's exposure to geopolitical and macroeconomic uncertainties, such as tariffs on Mexican imports, could negatively affect costs and profit margins if mitigation strategies are not fully effective.
  
• Operating expenses have been increasing, driven by higher production volumes and inflationary pressures on labor and other costs, which could impact net margins if not managed effectively.
  
• Weakness in specific geographic markets, such as new build demand in France and Central Europe, may dampen revenue growth and adversely affect overall financial performance.
  
• Cost savings from the simplification program may be offset by persistent inflationary pressures and other higher operational costs, potentially limiting margin improvements.
  
• The impact of foreign exchange fluctuations and reliance on specific regions for revenue can lead to financial volatility, affecting earnings if currency dynamics do not stabilize.

Valuation

• The analysts have a consensus price target of €25.785 for Fluidra 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 €29.5, and the most bearish reporting a price target of just €20.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €2.5 billion, earnings will come to €277.8 million, and it would be trading on a PE ratio of 23.0x, assuming you use a discount rate of 9.5%.
• Given the current share price of €19.79, the analyst price target of €25.79 is 23.3% 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.