Efficiency Savings And North America Acquisition Will Secure Future Stability

Key Takeaways

• Strategic capital allocation on high-return projects and business segmentation aims to improve margins and competitiveness, boosting long-term earnings.
  
• Acquisitions and fiber packaging growth indicate potential revenue increases and enhanced profitability, particularly in North America.
  
• Macro uncertainties, soft demand, and currency volatility threaten Huhtamaki’s revenue stability, profitability, and financial projections, particularly in North America.

Catalysts

Provides packaging solutions in the United States, Germany, the United Kingdom, India, Turkey, Australia, Thailand, Poland, South Africa, Spain, Finland, and internationally.

• The company's efficiency improvement program is tracking well, with expected total savings of €100 million. This ongoing effort should lead to lower operational costs and potentially improved net margins.
  
• There is strong emphasis on disciplined capital allocation, scrutinizing all CapEx investments, indicating a strategic focus on high-return projects. This approach can enhance future earnings by optimizing capital deployment.
  
• The recent acquisition of Selwyn Farms in North America, although small, is considered strategic and expected to be accretive to margins and returns from year one. This suggests potential for revenue growth and improved profitability in the North American market.
  
• The segmentation and empowerment of business units, including the foodservice and fiber divisions, along with the establishment of a global procurement organization, are aimed at accelerating execution speed and competitiveness, potentially boosting revenue and margins.
  
• The fiber packaging segment showed strong 10% comparable growth driven by both price and volume, indicating its potential as a catalyst for sustainable revenue growth across the business.

Huhtamäki Oyj Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Huhtamäki Oyj's revenue will grow by 3.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.9% today to 6.8% in 3 years time.
• Analysts expect earnings to reach €312.5 million (and earnings per share of €2.96) by about May 2028, up from €244.7 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €265.6 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.9x on those 2028 earnings, up from 13.9x today. This future PE is lower than the current PE for the GB Packaging industry at 111.4x.
• Analysts expect the number of shares outstanding to grow by 0.2% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.9%, as per the Simply Wall St company report.

Huhtamäki Oyj Future Earnings Per Share Growth

Risks

• The uncertainty in the macroeconomic environment and potential external pressures, like tariffs, could negatively impact Huhtamaki’s revenue stability and profitability, particularly in the North American market.
  
• Soft demand in key business segments such as food service could lead to continued declines in comparable growth and EBIT, thereby impacting overall margin performance and revenue.
  
• The adverse impact of fluctuating currency rates, especially the unpredictability of the U.S. dollar, could create volatility in earnings and complicate financial projections.
  
• Input costs remaining stable or increasing, without corresponding price adjustments, could strain net margins, despite efforts to pass costs to customers in certain segments like fiber packaging.
  
• A negative cash flow and reliance on external factors like inventory and market seasonality for improvement could pose risks to financial stability and impact liquidity.

Valuation

• The analysts have a consensus price target of €39.8 for Huhtamäki 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 €44.5, and the most bearish reporting a price target of just €32.3.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €4.6 billion, earnings will come to €312.5 million, and it would be trading on a PE ratio of 15.9x, assuming you use a discount rate of 5.9%.
  
• Given the current share price of €32.42, the analyst price target of €39.8 is 18.5% 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.