Autonomous Maritime Systems And Photonics Will Drive Significant Long Term Earnings Power

Catalysts

About Exail Technologies

Exail Technologies develops advanced navigation, maritime robotics and photonics solutions for defense, space, telecom and critical civil applications.

What are the underlying business or industry changes driving this perspective?

• Acceleration in adoption of autonomous maritime systems, illustrated by more than EUR 1 billion of mine hunting orders since 2019 and expanding multi-navy tenders, supports sustained double digit revenue growth and scale driven margin expansion.
• Broadened use cases for the UMIX navigation architecture across land, air, sea and space platforms, from UAVs and UGVs to helicopters and trains, materially enlarges the addressable market and is expected to drive higher navigation revenues with structurally attractive EBITDA margins.
• Uniquely integrated control of critical subsystems in drone and mine hunting solutions, including vehicles, sonar, INS and positioning, creates a technology moat that underpins a roughly 95 percent historical tender win rate, reinforcing pricing power and long term net margin improvement.
• Rapid growth in underwater and seabed infrastructure surveillance, offshore wind and wider energy offshore operations, where DriX systems already operate in 19 countries with over 100,000 hours at sea, positions Exail to capture recurring services and upgrade revenues that support earnings compounding.
• Strong early traction in high end photonics and laser sources for space and telecommunications, combined with a completed capacity expansion, provides operating leverage as volumes ramp, supporting faster growth in group EBITDA and operating income than in top line.

Assumptions

This narrative explores a more optimistic perspective on Exail Technologies compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Exail Technologies's revenue will grow by 27.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 0.3% today to 12.9% in 3 years time.
• The bullish analysts expect earnings to reach €120.5 million (and earnings per share of €6.12) by about December 2028, up from €1.1 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €83.6 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 27.3x on those 2028 earnings, down from 1210.4x today. This future PE is lower than the current PE for the GB Aerospace & Defense industry at 38.3x.
• The bullish 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 7.34%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The current boom in mine hunting and drone programs may prove cyclical rather than structural. If defense budgets or geopolitical priorities shift away from naval mine countermeasures and seabed warfare, large multi year contracts could slow or be postponed, reducing order intake momentum and ultimately constraining revenue growth and EBITDA expansion.
• Execution risk on very large, multi year flagship contracts, including potential delays in milestones, integration complexity across multiple drone and sensor platforms, and customer acceptance risk, could push deliveries and cash inflows into later periods, pressuring near term revenue recognition, EBITDA margins, and operating income.
• The group is investing heavily in production capacity, relocations, and new facilities such as the large Austin site and the consolidated photonics plant. If demand in navigation, photonics, and maritime robotics grows more slowly than expected, fixed cost absorption could weaken and keep EBITDA margins and net income below the bullish trajectory.
• Although management highlights limited current competition in long endurance surface drones and integrated mine hunting systems, rising global interest in autonomous defense robotics may attract larger defense primes and agile new entrants. This could lead to price pressure and a lower future win rate, which would weigh on long term revenue growth and net margins.
• The deleveraging story is highly dependent on timely cash receipts from major programs like the Belgian contract and the new undisclosed navy order. If payment schedules slip, working capital outflows persist, or further upfront investments are needed, net debt could remain elevated for longer and higher financial expenses would cap earnings growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Exail Technologies is €156.0, which represents up to two standard deviations above the consensus price target of €128.57. This valuation is based on what can be assumed as the expectations of Exail Technologies's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €156.0, and the most bearish reporting a price target of just €99.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be €934.5 million, earnings will come to €120.5 million, and it would be trading on a PE ratio of 27.3x, assuming you use a discount rate of 7.3%.
  
• Given the current share price of €81.8, the analyst price target of €156.0 is 47.6% 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.