Program Solar Will Deliver EUR 55 Million Savings By 2026

Key Takeaways

• Sanoma's operational efficiencies and strategic growth via M&A are set to enhance profitability and margins significantly.
  
• Digital transformation and strategic price increases will support revenue stability, reducing dependency on declining print media.
  
• Strategic divestments and market challenges in learning and media sectors could negatively impact Sanoma Oyj's revenue growth, profitability, and financial stability.

Catalysts

Operates as a media and learning company in Finland, the Netherlands, other European countries, and internationally.

• Sanoma is poised to enhance profitability through operational efficiencies, notably from the Program Solar, with expected savings of €55 million by 2026. This will positively impact margins and earnings as these improvements are fully realized.
  
• The completion of the solar program actions positions Sanoma well for margin improvement as early as 2025, before the major curriculum renewals, indicating stronger future EBIT margins.
  
• The company's focus on deleveraging and strengthening the balance sheet enhances its capacity for growth through strategic M&A, likely positively impacting revenue and long-term earnings growth.
  
• The digital transformation in Media Finland, particularly growth in digital subscriptions and advertising, is expected to bolster revenue streams while reducing reliance on the declining print media market.
  
• Price increases in Learning are sustaining higher revenue levels, with more normalized price increases expected to maintain revenue stability despite lowering sales in certain markets. This strategy aids in cushioning revenue flow before organic growth kicks in post-2026.

Sanoma Oyj Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Sanoma Oyj's revenue will grow by 2.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.3% today to 9.6% in 3 years time.
• Analysts expect earnings to reach €137.3 million (and earnings per share of €0.82) by about March 2028, up from €30.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.3x on those 2028 earnings, down from 45.1x today. This future PE is lower than the current PE for the GB Media industry at 18.2x.
• Analysts expect the number of shares outstanding to decline by 0.16% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.38%, as per the Simply Wall St company report.

Sanoma Oyj Future Earnings Per Share Growth

Risks

• The planned discontinuation of low-value learning material contracts in the Netherlands and Belgium could contribute to a decline in net sales, impacting revenue and potentially affecting earnings.
  
• The divestment of certain business segments, such as Stark, may lead to decreased revenue streams and limit growth opportunities, affecting overall earnings.
  
• The media sector in Finland faces challenges, including weaker advertising sales and reductions in print and TV advertising revenue, which could negatively impact financials, particularly net margins and earnings.
  
• Increased competition and changes in the educational market, such as lower cycles in Spain, pose risks to revenue and profitability, as they could affect net sales and operational margins within the Learning segment.
  
• Market and economic conditions, particularly in the advertising sector, are uncertain and any unfavorable changes could result in lower-than-expected revenue growth and earnings, posing risks to financial stability and margins.

Valuation

• The analysts have a consensus price target of €10.1 for Sanoma 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 €10.8, and the most bearish reporting a price target of just €9.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €1.4 billion, earnings will come to €137.3 million, and it would be trading on a PE ratio of 14.3x, assuming you use a discount rate of 6.4%.
  
• Given the current share price of €8.55, the analyst price target of €10.1 is 15.3% 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.