Expansion And New Contracts Will Strengthen Future Performance

Key Takeaways

• Acquisition of SRX Global expands geographic presence, potentially driving revenue through comprehensive global service offerings in new regions.
  
• Strong financial position with low debt facilitates strategic acquisitions and investments, potentially enhancing earnings and EPS.
  
• Negative organic growth and reliance on volatile segments indicate potential revenue instability, while the SRX Global acquisition poses integration risks affecting financial performance.

Catalysts

Operates as a contract manufacturer and system supplier for the electronics industry worldwide.

• Scanfil's acquisition of SRX Global is expected to significantly enhance its geographic footprint, providing a presence in Malaysia and Australia. This strategic move is likely to drive future revenue growth by offering clients more comprehensive global services.
  
• The company has secured €41.7 million in new contracts within the quarter and €126 million year-to-date. The transition of these contracts into active manufacturing will likely boost revenues and potentially improve EBITDA as production scales up.
  
• The organizational restructuring into a regional management and reporting model starting in January, coupled with more granular visibility into regional performances, is expected to enhance operational efficiencies, possibly leading to improved net margins.
  
• Scanfil's robust on-time delivery performance (98%) and high customer satisfaction are likely to sustain customer loyalty and attract new business, potentially boosting both future revenues and improving net margins through repeat contracts and business expansion.
  
• Scanfil maintains a strong financial position with low debt and ample cash reserves, enabling flexibility for further strategic acquisitions and organic growth investments, which could positively impact future earnings and EPS.

Scanfil Oyj Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Scanfil Oyj's revenue will grow by 6.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.1% today to 5.5% in 3 years time.
• Analysts expect earnings to reach €52.6 million (and earnings per share of €0.81) by about February 2028, up from €40.3 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.8x on those 2028 earnings, up from 13.2x today. This future PE is lower than the current PE for the GB Electronic industry at 27.8x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.66%, as per the Simply Wall St company report.

Scanfil Oyj Future Earnings Per Share Growth

Risks

• The negative organic growth of 18.6% in Q3, driven by challenging market conditions, indicates potential instability in revenue streams, which could impact future earnings if not effectively managed.
  
• Despite efforts in cost management, the company's margins remain under pressure in a volatile market environment, with operating margin consistently between 7% and 8%, suggesting limited profitability growth in the short-term.
  
• The Energy & Cleantech segment experienced a significant decline in revenue by 28.4%, highlighting reliance on fluctuating customer demand, which could impede overall revenue growth and profitability.
  
• The acquisition of SRX Global introduces integration and operational risks, which could strain resources and affect financial performance, potentially impacting net margins if the acquisition is not smoothly absorbed.
  
• An increase in tax expenses due to active dividend collection from subsidiaries, notably in regions like China and Estonia, might increase financial liabilities and affect net profit and earnings per share.

Valuation

• The analysts have a consensus price target of €9.2 for Scanfil 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 €948.0 million, earnings will come to €52.6 million, and it would be trading on a PE ratio of 13.8x, assuming you use a discount rate of 6.7%.
  
• Given the current share price of €8.17, the analyst price target of €9.2 is 11.2% 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.