Electrification Shift Will Boost PWR-Transmission, Grid And Connect Segments

Key Takeaways

• Nexans' focus on electrification and strategic PWR business growth is expected to drive revenue and support earnings through robust organic growth.
  
• Divestments and premiumization efforts aim to streamline operations, enhance net margins, and free cash flow for reinvestment.
  
• Slow European demand and divestments might affect revenue growth, while geopolitical uncertainties and regulatory changes could disrupt future projects and profit margins.

Catalysts

Manufactures and sells cables in France, Canada, Norway, Germany, and internationally.

• Nexans' ongoing shift to become a pure Electrification player and its strategic focus on PWR-Transmission, PWR-Grid, and PWR-Connect businesses are anticipated to enhance revenue growth, with a robust organic growth forecast for these sectors.
  
• The substantial increase in the adjusted backlog, particularly due to significant agreements like the RTE frame agreement and Malta Sicily project, indicates strong future revenue, which is likely to continue supporting earnings.
  
• Successful integration and synergy realization from past acquisitions, such as La Triveneta Cavi, are expected to positively impact net margins through cost efficiencies and enhanced capabilities.
  
• Strategic divestment activities, including ongoing negotiations for Lynxeo and potential future divestments, are set to streamline operations and refocus capital, potentially boosting net earnings and freeing cash flow for reinvestment or strategic initiatives.
  
• Investments in technology and premiumization efforts, exemplified by the transition from commodity to premium products in PWR-Connect, are poised to improve net margins through higher-value offerings and differentiation in the market.

Nexans Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Nexans's revenue will decrease by 2.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.3% today to 5.2% in 3 years time.
• Analysts expect earnings to reach €405.1 million (and earnings per share of €9.28) by about May 2028, up from €279.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €507 million in earnings, and the most bearish expecting €344 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.7x on those 2028 earnings, up from 15.0x today. This future PE is greater than the current PE for the GB Electrical industry at 15.1x.
• Analysts expect the number of shares outstanding to decline by 0.33% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.68%, as per the Simply Wall St company report.

Nexans Future Earnings Per Share Growth

Risks

• The company is experiencing slow demand in Europe for their PWR-Connect segment, which may affect revenue growth if recovery lags behind expectations.
  
• The divestment of Lynxeo, expected in Q3 2025, and the possible divestment of Auto Electric, could lead to a temporary discontinuity in revenue and impact net margins until new acquisitions stabilize.
  
• The uncertainty surrounding the Great Sea Interconnector (GSI) project due to geopolitical issues and the lack of a notice to proceed could result in halted production or financial losses, impacting earnings.
  
• The potential cancellation of U.S. offshore projects like Empire Wind 1 and Sunrise may limit future backlog, affecting future revenues and EBITDA despite existing termination fees.
  
• Increased competition or regulatory changes in the aluminum and copper markets, particularly with regard to tariffs and dumping from Asia, could impact cost structures and profit margins for Nexans.

Valuation

• The analysts have a consensus price target of €115.114 for Nexans based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €136.0, and the most bearish reporting a price target of just €90.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €7.8 billion, earnings will come to €405.1 million, and it would be trading on a PE ratio of 15.7x, assuming you use a discount rate of 8.7%.
  
• Given the current share price of €96.2, the analyst price target of €115.11 is 16.4% 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.