Bio-Based Materials And Capacity Investments Will Open New Markets

Key Takeaways

• Strategic partnerships and investments in capacity expansion will drive revenue growth in key segments and regions.
  
• Focus on margin improvement and stable pricing supports profitability amidst varied market demands.
  
• Market softness in key regions and uncertain demand in consumer value chains could suppress revenue and profitability across Kemira's divisions.

Catalysts

Operates as a chemicals company in Finland, rest of Europe, the Middle East, Africa, the Americas, and the Asia Pacific.

• The joint venture with IFF to produce bio-based materials at an industrial scale is expected to create a significant differentiation capability for Kemira, leading to new opportunities in Packaging & Hygiene Solutions, and water treatment. This is likely to contribute positively to revenue growth.
  
• Investments into expanding capacities, such as the iron sulfate coagulant business acquisition in North America and capacity increase investment in Thailand, are projected to support revenue growth, particularly in the resilient Water Solutions segment and the APAC region.
  
• The growth strategy execution, which includes over €100 million of new revenue through various organic and acquisition-based growth initiatives, is expected to bolster Kemira's revenue base significantly.
  
• Focus on margin improvement actions, especially in the Packaging & Hygiene Solutions segment, alongside stable sales prices, is aimed at enhancing net margins, even in the face of softened demand.
  
• The introduction of significant price increases in U.S. markets and the stable price environment for raw materials are expected to support Kemira's profitability and operational margin improvements moving forward.

Kemira Oyj Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Kemira Oyj's revenue will grow by 1.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.0% today to 9.1% in 3 years time.
• Analysts expect earnings to reach €275.9 million (and earnings per share of €1.76) by about May 2028, up from €232.2 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as €305 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.3x on those 2028 earnings, up from 12.1x today. This future PE is greater than the current PE for the GB Chemicals industry at 11.9x.
• Analysts expect the number of shares outstanding to grow by 0.3% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.49%, as per the Simply Wall St company report.

Kemira Oyj Future Earnings Per Share Growth

Risks

• The Packaging & Hygiene Solutions division is experiencing negative organic growth due to market softness, especially in China and North America, which could negatively impact Kemira's overall revenue.
  
• Market demand uncertainty, particularly in consumer-related value chains, could continue to suppress demand and revenues, particularly impacting net margins of the affected divisions.
  
• Contract manufacturing in the Water Solutions segment underperformed in terms of volume, which may affect revenue consistency and profitability in this segment.
  
• The new Packaging & Hygiene Solutions market remains highly uncertain due to economic volatility, which might hinder price stability and revenue growth efforts.
  
• While initiatives for growth through investments are promising, execution risks and dependencies on uncertain market recoveries might delay expected revenue and earnings from these ventures.

Valuation

• The analysts have a consensus price target of €22.612 for Kemira 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 €24.4, and the most bearish reporting a price target of just €19.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €3.0 billion, earnings will come to €275.9 million, and it would be trading on a PE ratio of 15.3x, assuming you use a discount rate of 6.5%.
  
• Given the current share price of €18.15, the analyst price target of €22.61 is 19.7% 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.