OUT1V: Marginally Higher Fair Value Offsets Cautious Revenue Outlook And Restructuring

Key Takeaways

• Leadership in sustainable stainless steel and expansion into advanced alloys position the company for revenue growth and improved margins amid rising global decarbonization.
  
• Structural cost-saving programs and favorable trade policies are boosting operating leverage, competitiveness, and long-term revenue stability.
  
• Weak demand, import competition, policy uncertainty, and rising costs threaten profitability, while reliance on cost-cutting over growth raises sustainability concerns for long-term earnings.

Catalysts

Produces and sells various stainless steel products in Finland, Germany, Italy, the United Kingdom, other European countries, North America, the Asia-Pacific, and internationally.

• Outokumpu's leading position in low-carbon, high-recycled-content stainless steel directly aligns with rising global demand for sustainable and traceable materials, placing it to benefit from the creation of "lead markets" in Europe for green steel as well as improved pricing power as environmental criteria become embedded in public procurement-supporting future revenue growth and margin expansion.
  
• The company's advanced cost-saving and structural efficiency programs (targeting €100m of structural cost savings by 2027, on top of near-term savings) are set to structurally lower the cost base, enhancing operating leverage and supporting higher net earnings as market conditions recover.
  
• Outokumpu is accelerating its shift toward higher-margin, less cyclical sectors through expansion in advanced alloys and specialty stainless products, enabling revenue diversification and supporting gross margin resilience even in weaker standard markets.
  
• Secular tailwinds from accelerating global decarbonization and green infrastructure build-out (renewables, mass transit, energy storage) are expected to drive medium-term volume and price increases for sustainable stainless steel-with Outokumpu winning share due to its lowest-in-class carbon footprint, thus positively impacting revenue and margin trajectory.
  
• The CBAM (Carbon Border Adjustment Mechanism) and strengthening of European trade safeguards are set to reduce price-dilutive Asian imports and create a more level playing field for local, sustainable producers-improving Outokumpu's capacity utilization, volume growth, and long-term revenue stability.

Outokumpu Oyj Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Outokumpu Oyj's revenue will grow by 4.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.8% today to 2.8% in 3 years time.
• Analysts expect earnings to reach €186.4 million (and earnings per share of €0.41) by about September 2028, up from €-49.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €227.1 million in earnings, and the most bearish expecting €147 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.2x on those 2028 earnings, up from -32.4x today. This future PE is lower than the current PE for the GB Metals and Mining industry at 86.4x.
• Analysts expect the number of shares outstanding to grow by 2.89% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.63%, as per the Simply Wall St company report.

Outokumpu Oyj Future Earnings Per Share Growth

Risks

• Persistent weak demand and high levels of low-cost Asian imports in Europe are putting significant downward pressure on Outokumpu's European stainless steel prices and capacity utilization, risking negative EBITDA and revenue decline for the European segment.
  
• Ongoing uncertainty and volatility in trade policy-including unresolved US-EU steel tariffs, the risk of unfavorable changes in quotas and safeguard measures, and delays or uncertain outcomes related to the EU's CBAM-creates a lack of predictable market access and pricing power, potentially undermining revenues and margin stability.
  
• Exposure to proposed mining tax increases in Finland (potential rise from 0.6% to 2.5%) and potential changes or reductions in electrification subsidies could add up to €50 million annually in costs, directly reducing Outokumpu's net margins and cash flow.
  
• Inflationary pressures, particularly in North America, limit the upside of regional price hikes and cap potential improvement in long-term EBITDA-while the Americas segment's growth is further hampered by lackluster demand recovery, limited market expansion due to high tariffs, and competitive threats from domestic and regional producers.
  
• The company's heavy emphasis on cost-cutting and structural savings-amid limited growth prospects for its foundational standard stainless steel business-signals reliance on internal efficiencies rather than organic top-line expansion, raising risks to sustainable long-term revenue and earnings growth if underlying market weaknesses persist.

Valuation

• The analysts have a consensus price target of €3.492 for Outokumpu 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 €4.5, and the most bearish reporting a price target of just €2.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €6.7 billion, earnings will come to €186.4 million, and it would be trading on a PE ratio of 11.2x, assuming you use a discount rate of 6.6%.
• Given the current share price of €3.51, the analyst price target of €3.49 is 0.5% lower. 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.