Integration Of Thermotite Do Brasil And US Expansion Will Improve Product Offerings In 2025

Key Takeaways

• Brazil optimization and high-torque capacity expansion projects are expected to boost margins and enhance premium product offerings.
  
• Strong demand and strategic initiatives in the U.S. and Middle East could increase revenue and improve net margins.
  
• Fluctuating demand in key regions, cost volatility, and restructuring expenses pose significant risks to Vallourec's financial stability and revenue potential.

Catalysts

Through its subsidiaries, provides tubular solutions for the oil and gas, industry, and energy markets in Europe, North America, South America, Asia, the Middle East, and internationally.

• The Brazil optimization program aims for regional cost improvements of over €150 per tonne, which is expected to fully realize targeted benefits in 2025, likely boosting net margins and earnings.
  
• The ongoing initiative to expand high-torque connection capacity in the U.S. and the integration of Thermotite do Brasil could drive premium product offerings and positively impact revenue and net margins.
  
• Continued increase in order activity and a robust pipeline of demand, especially from regions like the Middle East, could lead to an increase in international shipments in the second half of 2025, enhancing revenue and EBITDA.
  
• The initiation of tariffs in the U.S. is anticipated to boost domestic pricing to sustainable levels, potentially increasing revenue and improving net margins in that market.
  
• Achievement of a crisis-proof balance sheet with net debt turned to net cash position enables a high shareholder return model, potentially increasing earnings and investor attractiveness.

Vallourec Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Vallourec's revenue will grow by 7.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.2% today to 15.6% in 3 years time.
• Analysts expect earnings to reach €771.0 million (and earnings per share of €3.36) by about March 2028, up from €452.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.6x on those 2028 earnings, down from 9.4x today. This future PE is lower than the current PE for the GB Energy Services industry at 13.7x.
• Analysts expect the number of shares outstanding to grow by 0.43% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.51%, as per the Simply Wall St company report.

Vallourec Future Earnings Per Share Growth

Risks

• The increased tariffs in the U.S. have created uncertainties and could lead to more competition in international markets, potentially affecting Vallourec's deliveries and impacting revenue.
  
• Rapid changes in raw material costs, such as scrap pricing, could make it difficult for Vallourec to adjust its pricing strategies promptly, affecting net margins.
  
• The U.S. market's dependence on natural gas prices and the rig count, which is only stable, poses a risk to volume and revenue from gas-directed wells.
  
• Vallourec's heavy reliance on high-value markets, such as the Middle East and North Africa, increases risk exposure if demand fluctuates in these regions, potentially affecting revenue.
  
• Vallourec's cash flow and liquidity may be impacted by non-recurring items and substantial restructuring costs, which could affect future earnings and shareholder returns.

Valuation

• The analysts have a consensus price target of €22.0 for Vallourec based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €4.9 billion, earnings will come to €771.0 million, and it would be trading on a PE ratio of 8.6x, assuming you use a discount rate of 8.5%.
• Given the current share price of €18.26, the analyst price target of €22.0 is 17.0% 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.