Company Will Expand Into Renewable Polymers And Reorganize To Increase Operational Efficiency

Key Takeaways

• Kemira's focus on new technologies and renewable solutions aims to enhance revenue growth and improve margins through high-margin products.
  
• Company reorganization and strategic M&As could boost operational efficiency and revenue, while sustainability efforts enhance brand value and consumer appeal.
  
• Challenges in the pulp and paper sector, cost pressures, and geopolitical risks could impact Kemira's revenue and margins despite growth efforts.

Catalysts

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

• Kemira has set ambitious growth targets by focusing on doubling its water revenue and expanding into new markets and technologies, such as renewable polymers and the activated carbon market, which could drive revenue growth.
  
• The company has a strong M&A pipeline aimed at supporting its water segment, indicating potential future revenue and earnings growth through strategic acquisitions.
  
• Kemira's strategy includes building a leading renewable solutions portfolio, with a target of €500 million from this segment, which could positively impact revenue and net margins by tapping into higher-margin, innovative product lines.
  
• The company is progressing on sustainability goals such as emission reduction, validated by the SBTi, which could enhance its brand value, appeal to environmentally conscious consumers, and potentially improve net margins through efficiency gains.
  
• Kemira’s reorganization into three segments, along with the new leadership team focused on profitable growth, could enhance operational efficiency, potentially increasing margins by streamlining fixed cost management and increasing customer and employee satisfaction.

Kemira Oyj Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Kemira Oyj's revenue will grow by 2.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.5% today to 9.3% in 3 years time.
• Analysts expect earnings to reach €298.7 million (and earnings per share of €1.94) by about March 2028, up from €249.4 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €260.8 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.3x on those 2028 earnings, up from 13.4x today. This future PE is greater than the current PE for the GB Chemicals industry at 13.5x.
• 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 6.58%, as per the Simply Wall St company report.

Kemira Oyj Future Earnings Per Share Growth

Risks

• The chemical industry faced challenges during 2024, with weak market conditions in the pulp and paper sector; the recovery is not expected until the latter part of 2025, potentially impacting Kemira's revenue and earnings.
  
• There is a risk of increased fixed costs due to maintenance and reorganization, which could pressure net margins if not effectively managed.
  
• Potential trade tariffs and geopolitical tensions could disrupt supply chains and raw material costs, affecting revenue stability and profit margins.
  
• There is a modest expectation for price increases and raw material cost stabilization, but unexpected inflationary pressures or cost increases could compress profit margins.
  
• While focusing on growth through M&A and expansion, high capital expenditures and delayed returns on new investments might lower near-term financial performance and free cash flow.

Valuation

• The analysts have a consensus price target of €24.438 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 €27.5, and the most bearish reporting a price target of just €22.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €3.2 billion, earnings will come to €298.7 million, and it would be trading on a PE ratio of 15.3x, assuming you use a discount rate of 6.6%.
• Given the current share price of €21.72, the analyst price target of €24.44 is 11.1% 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.