Investing In Decarbonization And TPS Will Open New Market Opportunities

Key Takeaways

• Focus on high-margin segments and strategic investments in decarbonization can drive growth and improve earnings through proprietary solutions.
  
• Robust commercial pipeline and strategic acquisitions support revenue visibility and enhance earnings potential.
  
• Geopolitical factors, resource limitations, and policy changes pose risks to Technip Energies' project costs, timelines, revenue, and earnings growth across various markets.

Catalysts

Operates as an engineering and technology company for the energy transition in Europe, Russia, the Asia Pacific, Africa, the Middle East, and the Americas.

• Technip Energies is focusing on their higher margin segment, Technology, Products & Services (TPS), which is expected to drive accelerated growth and improve earnings margins through a broader offering of proprietary solutions and technology scale-up. This will likely boost overall revenue and net margins.
  
• The company has a strong commercial pipeline valued at €75 billion through 2026, which supports consistent order intake and backlog growth. This provides visibility for future revenue growth.
  
• Technip Energies' ambitious road map through 2028 targets over €8.6 billion in revenue with EBITDA exceeding €800 million and consistent free cash flow conversion. This highlights strong earnings growth potential and financial performance improvement.
  
• Their strategic investments are focused on decarbonization and circularity, with potential faster double-digit growth in these markets. This indicates future revenue expansion and market differentiation.
  
• The company plans value accretive investments, including potential M&A, aimed at enhancing their Technology, Products & Services portfolio, which should drive higher margin revenues and contribute positively to earnings growth.

Technip Energies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Technip Energies's revenue will grow by 8.1% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 5.8% today to 5.2% in 3 years time.
• Analysts expect earnings to reach €441.5 million (and earnings per share of €2.43) by about March 2028, up from €390.7 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as €506 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.1x on those 2028 earnings, up from 12.9x today. This future PE is greater than the current PE for the FR Energy Services industry at 12.9x.
• Analysts expect the number of shares outstanding to decline by 4.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.22%, as per the Simply Wall St company report.

Technip Energies Future Earnings Per Share Growth

Risks

• Technip Energies faces potential risks from geopolitical factors, such as tariffs imposed in the LNG market, which could affect project costs and timelines impacting revenue targets.
  
• The company’s growth in the U.K. market is dependent on securing construction resources, which could become a limiting factor and affect its ability to capitalize on opportunities, impacting future earnings.
  
• The blue hydrogen and carbon capture projects in the U.S. may be contingent on government policy and financial incentives such as the 45V updates; any unfavorable changes could pose risks to the anticipated revenue and cash flow.
  
• Technip Energies' entry into the Reju business model carries execution and market risks; delays or issues in securing feedstock, offtake agreements, or technology reliability could impact investment returns and net margins.
  
• Although Technip Energies has a solid project backlog, short-cycle work reliance and market fluctuations in sectors like ethylene could pose risks to sustained revenue and earnings growth if demand doesn’t materialize as expected.

Valuation

• The analysts have a consensus price target of €31.962 for Technip Energies 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 €39.0, and the most bearish reporting a price target of just €26.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €8.5 billion, earnings will come to €441.5 million, and it would be trading on a PE ratio of 14.1x, assuming you use a discount rate of 8.2%.
  
• Given the current share price of €28.92, the analyst price target of €31.96 is 9.5% 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.