Poland Expansion And Green Transition Projects Will Unlock Future Opportunities

Key Takeaways

• Acquisitions and cross-selling initiatives could drive revenue growth and improve efficiency, positively impacting net margins.
  
• Strategic initiatives like market expansion and engagement in green trends enhance long-term demand and credibility, boosting future earnings.
  
• Increased administrative costs, competitive market pressures, and reliance on acquisitions could strain profitability, while skilled personnel shortages and financial vulnerabilities pose additional challenges.

Catalysts

Provides design and project management services in Finland and Sweden.

• Solwers has actively expanded through acquisitions, including the recent move into Poland, which could lead to significant future revenue growth as they capitalize on new markets.
  
• The company reported growing collaboration among subsidiaries, enabling cross-selling opportunities and joint projects, which may improve revenue and efficiency, potentially impacting net margins positively.
  
• Solwers is planning a transfer to the main list, which entails significant one-off costs now but is expected to increase credibility and investor interest, positively affecting future earnings.
  
• An increasing order backlog and signs of market recovery, especially in Finland, suggest potential revenue growth as economic conditions improve and projects ramp up.
  
• The company's engagement in emerging trends like green transition and defense infrastructure projects are poised to drive long-term demand, enhancing future revenue and profitability.

Solwers Oyj Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Solwers Oyj's revenue will grow by 2.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.5% today to 2.9% in 3 years time.
• Analysts expect earnings to reach €2.5 million (and earnings per share of €0.27) by about March 2028, up from €1.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.2x on those 2028 earnings, down from 21.9x today. This future PE is lower than the current PE for the FI Professional Services industry at 26.2x.
• Analysts expect the number of shares outstanding to grow by 1.66% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.1%, as per the Simply Wall St company report.

Solwers Oyj Future Earnings Per Share Growth

Risks

• The increase in administrative costs, partly due to preparations for the transfer to the main list, is currently impacting profitability, as evidenced by a decrease in the EBITA margin from 7.3% in 2023 to 7.0% in 2024, potentially affecting net margins if these costs are not reduced as planned.
  
• The competitive market environment in both Finland and Sweden, with hard price competition and a surplus of companies chasing fewer projects, may constrain revenue growth and lead to slimmer profit margins unless Solwers can maintain its current client base and expand it through ambitious projects.
  
• Challenges in the supply of skilled personnel, despite simultaneous layoffs, could impact Solwers' ability to fulfill projects efficiently and maintain service quality, possibly affecting revenue and future business opportunities.
  
• The reliance on acquisitions for growth, coupled with high personnel and subcontracting costs primarily linked to acquisitions, could create financial strain if integration does not yield expected synergies, potentially compromising net earnings and profit margins.
  
• Write-downs related to receivables and repayment of government subsidiary support highlight potential vulnerabilities in financial management and external dependencies, affecting the overall financial health and net earnings consistency.

Valuation

• The analysts have a consensus price target of €3.4 for Solwers 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 €4.15, and the most bearish reporting a price target of just €2.65.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €85.3 million, earnings will come to €2.5 million, and it would be trading on a PE ratio of 17.2x, assuming you use a discount rate of 8.1%.
• Given the current share price of €2.46, the analyst price target of €3.4 is 27.6% 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.