€100 Million Cost-Saving Program Will Lower Operational Expenses

Key Takeaways

• Innovative customer solutions and timely investments are expected to drive revenue growth and improve profitability.
  
• Strategic M&A and cost-saving measures aim to expand margins and enhance earnings through increased efficiency.
  
• The company's reliance on growth in competitive markets and inflationary pressures could challenge revenue growth, cost management, and net margins.

Catalysts

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

• Huhtamaki's focus on accelerating profitable growth through innovative customer solutions and speeding up time to market investments is expected to drive future revenue growth.
  
• The disciplined approach to capital allocation, focusing on high-yielding projects, is projected to enhance return on investment, thereby improving earnings.
  
• Strategic M&A plans, aligned with markets and geographies that offer shareholder value, can potentially contribute to revenue growth and margin expansion.
  
• The completion and early delivery of the €100 million cost-saving program is anticipated to lower operational expenses, thus increasing net margins.
  
• Organic growth initiatives supported by the new organizational structure, with a focus on accountability and speed of execution, are expected to enhance efficiency and profitability, impacting earnings positively.

Huhtamäki Oyj Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Huhtamäki Oyj's revenue will grow by 3.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.4% today to 6.7% in 3 years time.
• Analysts expect earnings to reach €312.5 million (and earnings per share of €2.95) by about April 2028, up from €224.1 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €277.8 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.2x on those 2028 earnings, up from 14.2x today. This future PE is lower than the current PE for the GB Packaging industry at 29.7x.
• 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 5.88%, as per the Simply Wall St company report.

Huhtamäki Oyj Future Earnings Per Share Growth

Risks

• The company's reliance on growth in India and Turkey could be a risk, given the competitive markets and inflationary pressures there, potentially impacting revenue growth and net margins.
  
• The impact of inflationary pressures, particularly in raw materials and labor, could challenge cost management and squeeze profit margins, affecting net earnings.
  
• The high volatility in customer demand and changes in order patterns could lead to inconsistent revenue streams and challenges in inventory management, impacting net sales.
  
• The bird flu impact on the U.S. egg market might constrain the expected ramp-up of the new egg packaging plant, potentially delaying revenue contributions from this investment.
  
• The efficiency improvement program, while currently successful, requires sustained management to maintain savings without future cost benefits, which could otherwise impact net margins negatively if costs rise again.

Valuation

• The analysts have a consensus price target of €40.973 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 €46.0, and the most bearish reporting a price target of just €34.2.
• 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 16.2x, assuming you use a discount rate of 5.9%.
• Given the current share price of €30.34, the analyst price target of €40.97 is 26.0% 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.