Electric Vehicle Demand Will Unlock Graphite And Carbon Promise

Key Takeaways

• Imerys anticipates future revenue growth from strong demand in the electric vehicle market and a robust Graphite & Carbon performance.
  
• Sustainability initiatives and strategic pricing are expected to maintain margins and enhance brand reputation, positively impacting long-term earnings.
  
• Weak automotive market and industrial activity, asset divestment, and geopolitical uncertainties threaten Imerys' revenue growth, net margins, and overall profitability.

Catalysts

Provides mineral-based specialty solutions for various industries worldwide.

• Imerys is experiencing organic growth driven by strong demand in the electric vehicle market and robust performance in Graphite & Carbon, signaling potential future revenue growth.
  
• Despite challenging market conditions, Imerys is expecting to leverage its strong competitive position and new product offerings to capture additional market share, which could boost future revenue and earnings.
  
• The company's proactive pricing strategy, which involves passing on moderate cost increases to customers, is expected to help maintain or improve net margins going forward.
  
• Imerys' commitment to sustainability, including new power purchase agreements and a focus on biodiversity, may enhance its brand reputation and provide long-term value, potentially impacting both revenue and earnings positively.
  
• Imerys' strong local presence minimizes exposure to potential tariff impacts, which could stabilize revenue and earnings by mitigating external risks.

Imerys Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Imerys's revenue will grow by 3.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from -4.0% today to 11.3% in 3 years time.
• Analysts expect earnings to reach €448.3 million (and earnings per share of €3.36) by about May 2028, up from €-141.0 million today.
• 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, up from -18.2x today. This future PE is lower than the current PE for the GB Basic Materials industry at 9.1x.
• Analysts expect the number of shares outstanding to decline by 0.27% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.19%, as per the Simply Wall St company report.

Imerys Future Earnings Per Share Growth

Risks

• The automotive market in Europe, which is one of Imerys' key segments, is experiencing significant weakness, negatively impacting sales volumes, particularly in polymers and paint for the automotive sector. This could continue to drag on revenue growth.
  
• The overall industrial activity in Europe and the U.S. is expected to weaken further due to tariffs and uncertain economic conditions, which could adversely affect Imerys' revenue, especially since a sizable portion of its business is centered around these regions.
  
• Imerys faces challenges from the divestment of paper-related assets, impacting revenues, and a substantial decrease in joint venture contributions compared to an exceptional previous year, which could negatively affect net margins and net income.
  
• The continued uncertainty surrounding tariffs and trade policies creates a volatile market environment, which could disrupt Imerys' projections for revenue and earnings stability, particularly considering potential indirect impacts that are currently difficult to predict.
  
• Imerys' adjusted EBITDA margins have been impacted by previous perimeter changes and negative joint venture contributions. With the current challenging market conditions and potential for increased costs, maintaining or improving these margins may be a challenge, affecting overall profitability and earnings.

Valuation

• The analysts have a consensus price target of €36.8 for Imerys 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 €55.0, and the most bearish reporting a price target of just €29.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €4.0 billion, earnings will come to €448.3 million, and it would be trading on a PE ratio of 8.6x, assuming you use a discount rate of 8.2%.
  
• Given the current share price of €30.38, the analyst price target of €36.8 is 17.4% 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.