Program Solar Will Deliver Significant Operational Efficiencies By 2026

Key Takeaways

• Operational efficiencies from Program Solar and digital transformation efforts expected to improve margins and support growth in Learning and Media Finland divisions.
  
• Strong M&A focus, with potential strategic acquisitions in K12 markets, aimed at enhancing earnings and future growth prospects.
  
• Structured plan discontinuation and macroeconomic factors could limit net margin improvements, with risks from media divestment, weakening advertising, and restructuring costs.

Catalysts

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

• Sanoma's operational EBIT and margins are expected to improve through the continuation of their Program Solar, which aims for significant efficiencies by 2026. This will likely positively impact net margins and free cash flow.
  
• The company anticipates organic growth in their Learning division from 2026 onwards due to curriculum renewals, which is expected to drive future revenue growth.
  
• Media Finland's ongoing digital transformation, with growth in digital subscriptions and advertising, is expected to offset declines in traditional media, positively impacting both revenue and operational earnings.
  
• Management has indicated a strong focus on M&A, including larger acquisitions, which can potentially enhance future earnings and growth prospects, provided they are value-accretive.
  
• Continued improvement in leverage and balance sheet strength creates room for potential strategic acquisitions in K12 markets, which could lead to increased earnings and support future growth.

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 February 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 14.4x on those 2028 earnings, down from 45.7x today. This future PE is lower than the current PE for the GB Media industry at 20.3x.
• 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 6.39%, 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 lead to a slight decline in net sales, impacting overall revenue.
  
• The divestments in both Media and Learning sectors may result in reduced revenue streams, potentially affecting overall profitability.
  
• The decline in profitable sales in Spain due to lower LOMLOE, despite being offset by growth in other markets, poses a risk to stable operational earnings, affecting net margins.
  
• The weakening advertising sales market in Finland, particularly in print and TV, could offset gains in digital subscriptions, impacting overall revenue from Media Finland.
  
• Uncertain macroeconomic conditions and the ongoing restructuring in Spain and other areas might incur further costs beyond expected efficiencies, potentially limiting improvements in net 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 14.4x, assuming you use a discount rate of 6.4%.
  
• Given the current share price of €8.65, the analyst price target of €10.1 is 14.4% 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.