Acquisitions And Operational Improvements Will Secure Estonia And Finland Markets

Key Takeaways

• Acquisitions and market penetration strategies are expected to boost revenue and earnings in Estonia and Finland.
  
• Operational efficiencies and strategic growth plans enhance profitability, ensuring stable margins and long-term potential amidst economic uncertainties.
  
• Increased leverage, geopolitical uncertainties, and challenges in Baltic and Swedish markets pressure Boreo Oyj's financial stability while expansion through acquisitions heightens operational risks.

Catalysts

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

• The acquisitions of Spetselektroodi AS and Elfa Distrelec are anticipated to enhance the quality of Boreo's portfolio and provide growth through better market penetration in Estonia and Finland. This is expected to improve revenue and earnings as these acquisitions mature.
  
• The recovery and growth momentum in the Electronics business area, evidenced by significant sales and EBIT growth, signal continued profitability improvement. This is likely to positively impact earnings and margins.
  
• The stable demand outlook for core businesses, like Swedish Putzmeister's sizable order book for concrete pumps, suggests a steady revenue stream and margin stability despite wider economic uncertainties.
  
• Operational improvements, including cost actions and effective working capital management, have led to better profitability. These efficiencies should enhance net margins and overall earnings.
  
• The ongoing execution of Boreo's growth plan and focus on strategic business adjustments, such as spin-offs and market-driven structural changes, can drive long-term earnings potential and improve financial standings.

Boreo Oyj Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Boreo Oyj's revenue will grow by 7.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.6% today to 2.8% in 3 years time.
• Analysts expect earnings to reach €4.6 million (and earnings per share of €1.25) by about May 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 8.5x on those 2028 earnings, up from -53.1x today. This future PE is lower than the current PE for the GB Electronic industry at 15.4x.
• 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 9.22%, as per the Simply Wall St company report.

Boreo Oyj Future Earnings Per Share Growth

Risks

• The firm's leverage has increased due to the repayment of debt obligations, which could pressure the company’s balance sheet and affect future earnings if economic conditions worsen.
  
• The current geopolitical uncertainty and potential for trade tariffs could disrupt supply chains and increase costs, impacting net margins and profitability.
  
• Challenges in the Baltic market and risks related to production bottlenecks in Sweden may continue to pose headwinds, limiting revenue growth in those regions.
  
• Future sales growth is uncertain beyond H1, and any slowdown in the economy or construction sector could dampen order book expansions, affecting revenues.
  
• The company’s aggressive expansion strategy through acquisitions requires careful integration to avoid potential dilution of earnings, adding operational risk.
  

Valuation

• The analysts have a consensus price target of €15.0 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 €166.3 million, earnings will come to €4.6 million, and it would be trading on a PE ratio of 8.5x, assuming you use a discount rate of 9.2%.
  
• Given the current share price of €15.8, the analyst price target of €15.0 is 5.3% 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.