Acquisition Of ThermaSol And Focus On New Products Will Capture Emerging Sauna And Spa Demand

Key Takeaways

• Harvia's U.S. acquisition and new product innovation aim to boost revenue and market expansion, benefiting steam and sauna segments.
  
• Strategic growth in APAC and North America focuses on operational efficiencies and optimized sales, enhancing margins and cash flow.
  
• Rising material costs, declining Finnish sales, and reliance on U.S. campaign sales threaten margins and brand positioning.

Catalysts

Manufactures and distributes traditional, steam, and infrared saunas.

• The acquisition of ThermaSol, a U.S.-based steam company, is expected to strengthen Harvia's position in the steam product category and the U.S. marketplace, which will likely fuel revenue growth.
  
• Harvia's focus on innovation and new product launches, such as digital and solar-powered solutions, positions the company to capture demand in emerging sauna and spa segments, influencing revenue positively.
  
• Strategic expansion efforts in APAC and further investments in regions like North America suggest continued geographical revenue growth, supported by Harvia's market leadership strategy.
  
• Ongoing investments in R&D and commercial organizations are designed to improve operational efficiencies and expand offerings, which might enhance long-term net margins once the initial investment cycle matures.
  
• Harvia's direct-to-consumer and volume retail management strategies in North America are likely to improve cash flow and profitability by optimizing sales channels and reducing inventory risks.

Harvia Oyj Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Harvia Oyj's revenue will grow by 10.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 13.8% today to 17.6% in 3 years time.
• Analysts expect earnings to reach €41.6 million (and earnings per share of €2.23) by about May 2028, up from €24.2 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 22.7x on those 2028 earnings, down from 31.3x today. This future PE is lower than the current PE for the FI Leisure industry at 30.9x.
• Analysts expect the number of shares outstanding to decline 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 5.65%, as per the Simply Wall St company report.

Harvia Oyj Future Earnings Per Share Growth

Risks

• The profitability margin was below the long-term target due to higher shares of lower-margin sales, particularly during campaign sales in the U.S., impacting net margins.
  
• The significant marketing expenses in Q4 were not capitalized, leading to reduced profitability in the short term, which could impact earnings if similar expenses recur.
  
• The impact of rising material costs, including wood, which increased significantly during the second half, affected margins and may continue to impact net margins if not managed effectively in the future.
  
• Sales in Finland have been declining due to the weak construction and property market, which affects overall revenue growth if not counterbalanced by growth in other regions.
  
• The reliance on campaign-driven sales in the U.S. raises questions about sustaining growth without compromising the brand's premium positioning, potentially affecting long-term revenue and brand value.

Valuation

• The analysts have a consensus price target of €44.5 for Harvia 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 €47.0, and the most bearish reporting a price target of just €40.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €237.2 million, earnings will come to €41.6 million, and it would be trading on a PE ratio of 22.7x, assuming you use a discount rate of 5.6%.
• Given the current share price of €40.65, the analyst price target of €44.5 is 8.7% higher. 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.