Supply Chain Efficiencies And Vita's Expansion Into China Will Drive Future Performance

Key Takeaways

• Record-high EBIT and strong gross margins result from supply chain efficiencies and cost-saving programs, enhancing future net margins.
  
• Separation into Fiskars and Vita aims to boost operational efficiency, with expansion in e-commerce and Chinese flagship stores expected to drive revenue growth.
  
• Heavy reliance on U.S. sales, luxury brands, and emerging markets like China could lead to revenue volatility, impacting long-term financial stability.

Catalysts

Manufactures and markets consumer products for indoor and outdoor living in Europe, the Americas, and the Asia Pacific.

• The company has achieved a record-high EBIT with strong gross margins, driven by supply chain efficiencies and cost-saving programs initiated in 2023, indicating an ability to sustain or further improve net margins in the future.
  
• Significant investment in demand creation and new market entries, particularly for the Vita business, including a €12 million reinvestment in marketing, suggests potential for revenue growth by expanding brand reach and capturing more consumer interest.
  
• The separation of the company into two legal entities, Fiskars and Vita, is designed to increase operational efficiency and focus, offering structural optionality that could lead to improved earnings through tailored strategies and more targeted investments.
  
• The expansion of their omnichannel strategy, particularly with a strong push in e-commerce and flagship stores in China, is expected to enhance revenue streams and capitalize on growing consumer trends towards online shopping.
  
• Executive confidence in mitigating U.S. tariffs by diversifying sourcing and pushing potential cost increases back into prices indicates strategic management of costs and protection of net margins, which is crucial given that the U.S. is a significant market for Fiskars' products.

Fiskars Oyj Abp Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Fiskars Oyj Abp's revenue will grow by 4.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.3% today to 9.9% in 3 years time.
• Analysts expect earnings to reach €129.1 million (and earnings per share of €1.59) by about March 2028, up from €27.1 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.5x on those 2028 earnings, down from 46.9x today. This future PE is lower than the current PE for the GB Consumer Durables industry at 30.8x.
• 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 9.08%, as per the Simply Wall St company report.

Fiskars Oyj Abp Future Earnings Per Share Growth

Risks

• The significant reliance on U.S. sales, with the potential impact of dynamic tariff discussions, poses a risk to revenue and profitability if sourcing issues from outside the U.S. are not efficiently mitigated.
  
• The ongoing declines in net sales and organic growth, despite improved EBIT, suggest challenges in demand that could impact future revenue growth if not adequately addressed.
  
• The focus on luxury brands in Vita and the reliance on new and emerging markets, notably in China, where economic conditions can be unpredictable, may lead to revenue volatility.
  
• Increased marketing investments may improve demand creation, but if the expected return on this investment does not materialize, it could impact net margins and overall profitability.
  
• The high dividend payout ratio could limit reinvestment opportunities and the ability to reduce leverage further, potentially affecting long-term financial stability and capacity for future earnings growth.

Valuation

• The analysts have a consensus price target of €15.5 for Fiskars Oyj Abp 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 €1.3 billion, earnings will come to €129.1 million, and it would be trading on a PE ratio of 12.5x, assuming you use a discount rate of 9.1%.
• Given the current share price of €15.72, the analyst price target of €15.5 is 1.4% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.