Acquisitions Of Telko And Swed Handling Will Improve Supply Chain Efficiencies

Key Takeaways

• Investments in eco-friendly shipping and strategic acquisitions are set to enhance revenue and improve margins through efficiencies and shifting customer preferences.
  
• Exiting the Russian market and focusing on Western expansion aims to improve revenue, net margins, and operational efficiencies.
  
• High working capital demands and substantial investments could strain cash reserves, affecting liquidity, profitability, and investor confidence amidst low return on equity.

Catalysts

Provides shipping services in Finland, Scandinavia, the Baltic countries, Russia, Ukraine, other CIS countries, and internationally.

• The strategic investments in green coasters and handys are expected to enhance ASPO's long-term financial performance, potentially increasing future revenues and improving margins as customer preferences shift towards eco-friendly shipping solutions.
  
• The acquisitions of Telko and Swed Handling are anticipated to drive substantial top-line growth and profitability via cross-selling opportunities, synergies, and enhanced supply chain efficiencies, positively affecting both revenue and net margins.
  
• Leipurin's strategic shift towards high-margin products and successful integration of Kebelco presents opportunities for significant profitability improvements, which could bolster earnings.
  
• The exit from the Russian market allows ASPO to redirect resources and focus on expanding and strengthening its operations in Western markets, potentially leading to improved revenue and margins.
  
• ESL Shipping's upcoming vessel sales and contract renegotiations are expected to optimize operational costs and asset utilization, thereby positively impacting net margins and earnings moving forward.

Aspo Oyj Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Aspo Oyj's revenue will grow by 6.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.3% today to 3.8% in 3 years time.
• Analysts expect earnings to reach €26.1 million (and earnings per share of €0.76) by about February 2028, up from €2.0 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as €33.2 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.2x on those 2028 earnings, down from 80.7x today. This future PE is lower than the current PE for the GB Industrials industry at 79.2x.
• 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 8.19%, as per the Simply Wall St company report.

Aspo Oyj Future Earnings Per Share Growth

Risks

• ASPO Oyj's free cash flow was negatively impacted by a high working capital requirement, primarily due to increased inventories at Telko and the green coaster vessels, which could strain cash reserves and impact overall liquidity management.
  
• The company experienced a decline in ESL's net sales due to soft demand in the spot market and high maintenance costs, which could impact profit margins and overall revenue growth.
  
• The company's return on equity was reported as low, due to an impairment loss on supramax vessels and poor ESL profitability, which could affect investor confidence and the value of the company's equity.
  
• ASPO committed to substantial investments, such as the €186 million expenditure on green handy's, which, although strategic, may increase financial leverage and risk if the projected long-term benefits do not materialize.
  
• A newly implemented dividend policy limits payout to 50% of net profit, reflecting a potential constraint on shareholder returns due to lower profitability and the decision to allocate funds to high capital commitments.

Valuation

• The analysts have a consensus price target of €6.1 for Aspo Oyj 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 €686.9 million, earnings will come to €26.1 million, and it would be trading on a PE ratio of 9.2x, assuming you use a discount rate of 8.2%.
  
• Given the current share price of €5.02, the analyst price target of €6.1 is 17.7% 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.