Electrification And M&A Will Strengthen Nordic Vehicle Aftermarket Position

Key Takeaways

• Strategic acquisitions and focus on private label products could enhance market share and profitability in the Nordic vehicle aftermarket.
  
• Leverage on electrification trends and cost efficiency measures may drive future revenue growth and strengthen financial standing.
  
• Dependence on acquisitions and rising costs, along with weather and labor disruptions, threaten revenue growth and may reduce profit margins.

Catalysts

Operates as a consolidator and acquisition platform for vehicle aftermarket in the Nordic and Baltic countries.

• The company has a strong track record of disciplined acquisitions and plans to increase the pace of M&A actions, which could enhance revenue and market share in the Nordic vehicle aftermarket.
  
• The electrification of vehicles and the growing complexity of spare parts and equipment open new market opportunities that could positively impact future revenue growth.
  
• Efforts to expand the share of private label products, particularly the NPD product line, are expected to improve gross margins significantly due to higher profitability from branded products.
  
• Enhanced cost efficiency measures in online consumer sales, coupled with gaining consumer confidence, are anticipated to contribute positively to earnings and cash flow.
  
• As interest rates decrease, the reduction in net interest expenses is expected to favorably impact net income and improve the overall financial position of the company moving forward.

Relais Group Oyj Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Relais Group Oyj's revenue will grow by 3.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.7% today to 7.3% in 3 years time.
• Analysts expect earnings to reach €26.3 million (and earnings per share of €1.43) by about March 2028, up from €18.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €30.4 million in earnings, and the most bearish expecting €22.5 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.2x on those 2028 earnings, up from 14.1x today. This future PE is about the same as the current PE for the FI Trade Distributors industry at 14.2x.
• Analysts expect the number of shares outstanding to decline by 0.4% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.0%, as per the Simply Wall St company report.

Relais Group Oyj Future Earnings Per Share Growth

Risks

• The company's reliance on acquisitions to maintain growth could pose risks if acquisition targets become too expensive or if the company struggles to find suitable targets, impacting future revenue growth and earnings.
  
• Weather conditions can significantly affect product demand, as seen with the reliance on the cold start of the year for spare parts sales, which introduces variability and potential volatility in revenue and net margins.
  
• The increasing competition and rising costs in online marketing spaces may lead to diminishing returns on advertising expenditures, which could reduce profit margins.
  
• Personnel expenses are growing faster than revenue, which could squeeze net margins if the company cannot align wage increases with productivity gains.
  
• Any disruptions due to potential labor strikes or negotiations in Finland could impact operations, leading to potential revenue loss and increased operating expenses.

Valuation

• The analysts have a consensus price target of €17.462 for Relais Group 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 €20.3, and the most bearish reporting a price target of just €16.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €359.2 million, earnings will come to €26.3 million, and it would be trading on a PE ratio of 14.2x, assuming you use a discount rate of 8.0%.
• Given the current share price of €14.45, the analyst price target of €17.46 is 17.3% 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.