Minerals And Aggregates Orders And ERP System Will Drive Efficiency

Key Takeaways

• Strong order growth in key segments and ERP phase implementation indicate potential future revenue and margin improvements.
  
• Strategic tariff mitigation and inventory management likely enhance profitability and financial stability.
  
• Tariff-related volatility and unmet targets in service sales and sustainability initiatives could impact revenue, operating profit, and net margins.

Catalysts

Provides technologies, end-to-end solutions, and services for the aggregates, minerals processing, and metals refining industries in Europe, North and Central America, South America, the Asia Pacific, Greater China, Africa, the Middle East, and India.

• Metso's strong order growth in both the Minerals and Aggregates segments, particularly with new equipment orders, indicates potential future revenue growth as these orders are fulfilled.
  
• The implementation of Phase 3 of Metso's ERP system is expected to increase organizational efficiencies, potentially leading to improved net margins over time.
  
• Metso's strategic actions regarding tariff mitigation, such as price adjustments and global supply chain optimizations, could preserve earnings by minimizing cost increases and maintaining profitability.
  
• The continued focus on inventory normalization and reduction of indebtedness suggests effective cash flow management, which could enhance future earnings and financial stability.
  
• Expansion of the Metso Plus sustainability offering, despite recent challenges, has the potential to drive future sales growth, as there is a strategic focus on this high-value portfolio outperforming overall group sales.

Metso Oyj Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Metso Oyj's revenue will grow by 6.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.8% today to 11.8% in 3 years time.
• Analysts expect earnings to reach €675.2 million (and earnings per share of €0.81) by about May 2028, up from €474.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €599 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.8x on those 2028 earnings, up from 16.7x today. This future PE is lower than the current PE for the FI Machinery industry at 17.3x.
• Analysts expect the number of shares outstanding to grow by 0.05% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.83%, as per the Simply Wall St company report.

Metso Oyj Future Earnings Per Share Growth

Risks

• The uncertainty and volatility from tariff-related turbulence could potentially affect global economic growth and consequently impact market activity, leading to reduced orders and affecting revenue.
  
• The delay in large order announcements, reliance on small equipment orders, and the absence of significant projects could signal potential fluctuations in revenue streams.
  
• A decline in service sales and a failure to meet the growth target for the sustainability portfolio could hinder revenue and profitability.
  
• Operating profit decreased due to lower sales volumes compared to the previous year, impacting earnings.
  
• Delays in achieving energy reduction and sustainability logistics targets may incur additional costs, potentially affecting net margins.

Valuation

• The analysts have a consensus price target of €11.2 for Metso Oyj 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 €14.0, and the most bearish reporting a price target of just €8.5.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €5.7 billion, earnings will come to €675.2 million, and it would be trading on a PE ratio of 16.8x, assuming you use a discount rate of 6.8%.
  
• Given the current share price of €9.56, the analyst price target of €11.2 is 14.7% 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.