Professional Coffee Expansion And Asian Leadership Will Drive A Powerful Earnings Recovery

Catalysts

About SEB

SEB is a global leader in small domestic equipment and professional coffee solutions, driven by innovation across cookware, home care and consumer electrics.

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

• Scaling innovation in fast-growing categories such as floor washers, garment steamers, spot cleaners, oil less fryers and blenders across dozens of countries is expanding addressable markets and mix, supporting sustained revenue growth and higher gross margins.
• Reinforced leadership in China and the wider Asian region, with consistent like for like growth, strong market share gains in cookware and kitchen electrics and an expanded product portfolio, is set to drive a rising share of group sales at attractive profitability and earnings.
• Structural rollout of service centric Professional Coffee, including the Tasty acquisition in China and a growing base of contracts with coffee and tea chains, should convert an improving sales trend into higher fixed cost absorption, lifting segment ORfA and group operating margins.
• Strategic investments in logistics, new hubs and additional production capacity in locations such as Burgundy, Shaoxing and Vietnam are expected to streamline supply chains, reduce unit costs and mitigate tariff and freight headwinds, improving net margins and cash generation over time.
• Systematic price and mix management, especially in emerging markets and North America as FX and tariff dynamics normalize, should gradually restore pricing power, enhancing revenue quality and supporting a rebound in earnings and free cash flow.

Assumptions

This narrative explores a more optimistic perspective on SEB 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 SEB's revenue will grow by 3.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 1.6% today to 5.9% in 3 years time.
• The bullish analysts expect earnings to reach €544.2 million (and earnings per share of €10.1) by about December 2028, up from €132.7 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €365.0 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 14.1x on those 2028 earnings, down from 20.7x today. This future PE is lower than the current PE for the GB Consumer Durables industry at 20.7x.
• The bullish analysts expect the number of shares outstanding to grow by 0.22% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.36%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Persistent tariff uncertainty and structural changes in U.S. import patterns, including the shift from direct import to U.S. based sell in, could keep North American retailers in a prolonged wait and see mode, depressing volumes and delaying pricing pass through, which would structurally weigh on revenue growth and group earnings.
• High and rising net financial debt of EUR 2.658 billion, combined with elevated inventory levels and sizeable ongoing CapEx and acquisition spending, may constrain financial flexibility in a downturn, increasing financing costs and limiting the ability to invest in innovation. This would pressure net margins and free cash flow.
• Sustained currency volatility in emerging markets and between the euro, U.S. dollar and Chinese yuan, together with inevitable time lags in pricing response, could become a structural feature of SEB’s footprint. This could lead to recurring negative translation and transaction effects that erode gross margin and operating margin.
• Reliance on a narrow set of growth engines such as Professional Coffee and innovation led categories in Europe and Asia means any slowdown in contract wins, large deals or consumer uptake would quickly reduce fixed cost absorption and dilute mix. This would undermine the expected recovery in segment ORfA and group earnings.
• Geopolitical fragility in key regions such as the Middle East, North Africa, Eastern Europe and parts of Latin America, including import restrictions, political turmoil and climate related demand swings, suggests SEB may face recurring local disruptions. This could cap long term volume growth and add volatility to revenue and net margins.

Valuation

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

• The assumed bullish price target for SEB is €100.47, which represents up to two standard deviations above the consensus price target of €76.7. This valuation is based on what can be assumed as the expectations of SEB'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 €102.0, and the most bearish reporting a price target of just €60.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be €9.2 billion, earnings will come to €544.2 million, and it would be trading on a PE ratio of 14.1x, assuming you use a discount rate of 11.4%.
  
• Given the current share price of €50.15, the analyst price target of €100.47 is 50.1% 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.