Expansion Into Malaysia And Australia Will Strengthen Presence In Medtech & Life Science Sector

Key Takeaways

• Acquisition of SRXGlobal expands market reach in Medtech & Life Science, boosting revenue growth and expanding customer portfolio in Malaysia and Australia.
  
• Restructuring and investments in new manufacturing aim to enhance operational efficiencies, increase production capabilities, and drive future revenue and profit growth.
  
• The decline in revenue and segment vulnerabilities, alongside geopolitical and market uncertainties, pose significant risks to profitability and financial stability.

Catalysts

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

• The acquisition of SRXGlobal provides Scanfil with a presence in Malaysia and Australia and a new portfolio of customers, which is expected to drive revenue growth and expand market reach in the Medtech & Life Science sector.
  
• The restructuring of the organization into four new regions, with experienced leaders taking on new roles, is aimed at enhancing operational efficiencies and driving more focused regional growth, likely leading to improved net margins and earnings.
  
• Investments in new manufacturing capabilities in Malaysia, including SMT and THT lines, are expected to enhance production capabilities and efficiency, positively impacting revenue and operating profits.
  
• The focus on winning new deals, including significant contracts in the mining industry and climate change mitigation sectors, suggests positive future revenue growth opportunities, particularly as these projects ramp up production.
  
• The strategic focus on Medtech & Life Science and Energy & Cleantech sectors, alongside continued M&A activities, is expected to drive long-term revenue and profit growth, with potential improvements in net margins through increased scale and strategic customer relationships.

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 4.9% today to 5.5% in 3 years time.
• Analysts expect earnings to reach €51.4 million (and earnings per share of €0.79) by about April 2028, up from €38.6 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, which is the same as it is today today. This future PE is lower than the current PE for the GB Electronic industry at 16.9x.
• 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 6.95%, as per the Simply Wall St company report.

Scanfil Oyj Future Earnings Per Share Growth

Risks

• Despite improvements, organic growth was negative 15% for the fiscal year, showcasing challenges in generating revenue and indicating potential revenue risks.
  
• The decline in the Industrial and Energy & Cleantech segments' revenues reflects vulnerabilities in these areas, which could adversely affect net margins if not addressed.
  
• The geopolitical situation is noted as a risk that might negatively influence overall company performance and financial stability, potentially impacting future earnings and margins.
  
• The company's turnover dropped by more than €120 million, reflecting a 13% decline in revenue, which is a significant challenge if operational cost improvements cannot fully compensate for the decreased turnover.
  
• The market situation's stability and potential supply side issues are uncertain, which could affect pricing and the company's ability to maintain or grow its profit margins.

Valuation

• The analysts have a consensus price target of €9.283 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 €937.2 million, earnings will come to €51.4 million, and it would be trading on a PE ratio of 14.4x, assuming you use a discount rate of 6.9%.
• Given the current share price of €8.5, the analyst price target of €9.28 is 8.4% higher. 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.