Asian Market Rebound And Shaoxing Facility Will Drive Future Performance

Key Takeaways

• Expansion and innovation in Asia and new product lines are set to boost revenue growth and enhance margins.
  
• Strategic investments and acquisitions aim to increase production efficiency and strengthen market presence, safeguarding earnings against external challenges.
  
• SEB's heavy reliance on the Chinese market and exposure to geopolitical, economic, and currency risks could impact revenue and profit margins significantly.

Catalysts

Designs, manufactures, and markets small domestic equipment in Western Europe, rest of Europe, the Middle East, Africa, North and South America, China, and rest of Asia.

• SEB expects to see significant growth in the Asian market, particularly with the return to growth in China, where they anticipate this trend to continue throughout the year. This would positively impact revenue and earnings.
  
• The company is focusing on innovative product launches in high-demand segments such as versatile vacuum cleaners and garment steamers, promising strong future sales growth within the consumer business segment, which could improve revenue and net margins.
  
• SEB is in the process of constructing a new production and manufacturing hub in Shaoxing, China, which is expected to start production in 2026. This investment is anticipated to enhance production capabilities and reduce costs, thereby positively impacting earnings and operating margins in future years.
  
• The integration of La Brigade de Buyer and other recent acquisitions are positioned to strengthen SEB's premium offerings and market share in professional and consumer segments, potentially driving up revenue and margins.
  
• The company is actively working on mitigating U.S. tariff impacts through production relocation and optimization strategies. SEB expects that these efforts will protect their earnings by minimizing cost increases and potential revenue loss due to tariff-related challenges.

SEB Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SEB's revenue will grow by 4.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.8% today to 5.9% in 3 years time.
• Analysts expect earnings to reach €559.2 million (and earnings per share of €10.3) by about May 2028, up from €232.0 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as €621.9 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, down from 19.5x today. This future PE is greater than the current PE for the GB Consumer Durables industry at 10.3x.
• Analysts expect the number of shares outstanding to grow by 0.49% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.5%, as per the Simply Wall St company report.

SEB Future Earnings Per Share Growth

Risks

• SEB's reliance on the Chinese market, which forms a significant portion (25%) of its business, presents a risk if there are any geopolitical tensions or economic slowdowns in China, potentially impacting revenues.
  
• The decline in Professional Coffee sales could be a concern if it doesn't recover as expected, affecting the company's overall revenue and earnings.
  
• The company's profitability is currently impacted by high comparison bases and currency fluctuations, which are not indicative of full-year results but can still hinder net margins.
  
• SEB faces risks from tariffs, particularly in the U.S., which could increase costs and force price adjustments, potentially affecting both revenue and profit margins.
  
• The volatility in foreign exchange rates, such as the U.S. dollar and CNY, poses a risk to net margins, especially if unfavorable currency movements aren't sufficiently hedged against throughout the year.

Valuation

• The analysts have a consensus price target of €121.636 for SEB 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 €130.0, and the most bearish reporting a price target of just €106.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €9.4 billion, earnings will come to €559.2 million, and it would be trading on a PE ratio of 15.7x, assuming you use a discount rate of 9.5%.
  
• Given the current share price of €82.7, the analyst price target of €121.64 is 32.0% 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.