Postponed Orders In Putzmeister Sweden To Boost Operations In 2025

Key Takeaways

• Boreo anticipates improved profitability from strategic investments and order fulfillment, enhancing net margins and EBIT.
  
• Strategic financial maneuvers, including cost reduction and liquidity preservation, aim to bolster cash flows and support future growth and profitability.
  
• Weak industrial demand, legacy performance issues, and elevated debt levels pose risks to Boreo's profit margins and revenue stability.

Catalysts

Owns, acquires, and develops B2B businesses in Northern Europe.

• Boreo anticipates improved profitability in 2025 due to strategic investments, enhanced cost competitiveness, and stronger order books. These actions are likely to enhance net margins and operational EBIT.
  
• With a successful reduction in fixed costs by €2 million and an effective working capital strategy, Boreo expects to maintain strong operational cash flows. This financial discipline supports improved earnings quality.
  
• The electronics business, particularly Signal Solutions Nordic (SSN) and Milcon, saw significant sales growth and improved margins. This trend is expected to continue, driving overall revenue growth and profitability.
  
• The potential fulfillment of sizable postponed orders in early 2025, especially in the Putzmeister operations in Sweden, is expected to boost sales and operational EBIT significantly.
  
• Boreo has strategically extended credit facilities and postponed loan repayments to preserve liquidity and prepare for future acquisitions, aiming to fund growth initiatives primarily through operational cash flow, which should positively impact future earnings and leverage ratios.

Boreo Oyj Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Boreo Oyj's revenue will grow by 3.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.6% today to 2.7% in 3 years time.
• Analysts expect earnings to reach €4.0 million (and earnings per share of €1.02) by about March 2028, up from €-800.0 thousand 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 8.4x on those 2028 earnings, up from -37.8x today. This future PE is lower than the current PE for the GB Electronic industry at 19.6x.
• Analysts expect the number of shares outstanding to grow by 0.09% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.57%, as per the Simply Wall St company report.

Boreo Oyj Future Earnings Per Share Growth

Risks

• Revenues declined significantly in 2024 due to challenges in construction-related businesses and weak demand in industrial sectors, leading to a 17% sales drop. This signals potential ongoing volatility and difficulties in revenue generation.
  
• The company's high leverage ratio, currently at 2.8x, is a concern, as it indicates elevated debt levels that could constrain future earnings and financial flexibility.
  
• Boreo's portfolio includes numerous legacy businesses facing substantial performance issues, impacting profit margins and posing risks to further earnings decline in underperforming sectors.
  
• The Putzmeister business and certain machinery operations are under continued pressure from weak construction markets, which could lead to ongoing declines in net margins in these divisions.
  
• Increased operational costs in 2025 from necessary recruitments and inflationary pressures could reduce net margins if revenue growth does not offset these expenses.

Valuation

• The analysts have a consensus price target of €12.5 for Boreo Oyj based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €146.4 million, earnings will come to €4.0 million, and it would be trading on a PE ratio of 8.4x, assuming you use a discount rate of 10.6%.
  
• Given the current share price of €11.25, the analyst price target of €12.5 is 10.0% 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.