Rising Project Costs And Delays Will Erode Profitability

Key Takeaways

• Cost overruns, project delays, and legal uncertainties threaten profitability amid weak core markets, growing competition, and high exposure to cyclical and structural risks.
  
• Regulatory pressures and ESG demands are raising operating and capital costs, while customers' shift to sustainable suppliers challenges Imerys' ability to maintain margins.
  
• Imerys is set to benefit from electrification, sustainability trends, industry barriers, and regional policy support, boosting its market strength, pricing power, and long-term growth.

Catalysts

Engages in the supply of specialty minerals for various industries across Europe, the Middle East, Africa, Asia Pacific, and America.

• The massive cost inflation and delay in Imerys' flagship EMILI lithium project, with CapEx estimates increasing from just over 1 billion euros to 1.8 billion and commercial production pushed back to 2030, suggests that even with strong market assumptions, the project's return will be heavily dependent on lithium prices rising by at least 30 to 40 percent from current depressed levels; should market oversupply from global brine projects persist or EV penetration stall, Imerys could face structurally lower future revenue and depressed margins.
  
• Despite regulatory tailwinds and protectionist measures in Europe, Imerys' core construction and automotive end-markets remain at multi-year lows in Europe, and the business continues to be exposed to cyclical swings and long-term risks of substitution by more advanced or sustainable materials, implying greater downside to revenue growth and ongoing margin volatility.
  
• Intensifying global competition, particularly from lower-cost Chinese mineral producers, continues to erode Imerys' pricing power and threatens market share in high-energy minerals and refractories, a trend that may be only temporarily mitigated by European antidumping regulations and could lead to persistent long-term net margin pressure if supply imbalances remain.
  
• The company is still exposed to unresolved legal and environmental liabilities, notably ongoing US talc litigation where timing and outcomes are unknown, raising the risk of future one-off charges or long-term increases in compliance and remediation costs that will negatively affect net earnings and cash flow.
  
• Growing regulatory requirements around decarbonization and ESG compliance have already forced higher capital intensity in new projects like EMILI and are likely to increase the company's operating cost base over time, particularly as customers and investors accelerate their shift toward suppliers offering lower-carbon and more innovative materials, further constraining Imerys' ability to defend long-term profitability and return on invested capital.

Imerys Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Imerys compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Imerys's revenue will grow by 2.9% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -4.8% today to 9.7% in 3 years time.
• The bearish analysts expect earnings to reach €364.5 million (and earnings per share of €3.84) by about September 2028, up from €-166.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 6.6x on those 2028 earnings, up from -10.7x today. This future PE is lower than the current PE for the GB Basic Materials industry at 9.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.98%, as per the Simply Wall St company report.

Imerys Future Earnings Per Share Growth

Risks

• The rapid acceleration of electrification-particularly the growth of electric vehicles and large-scale battery storage-is driving strong, sustained demand for specialty minerals such as lithium and graphite, which directly benefits Imerys through its EMILI lithium project and conductive additives business, potentially supporting revenue growth and long-term earnings expansion.
  
• Increasingly stringent environmental regulations and the global shift towards lower-carbon, more sustainable manufacturing are raising demand for innovative, eco-friendly materials, allowing Imerys to command higher prices for its engineered solutions and improve net margins.
  
• Strategic investments by Imerys in R&D, innovation, and production capacity, particularly in high-value verticals like battery materials, advanced ceramics, and specialty filtration, make it well-positioned to capitalize on technological advancements and maintain or grow revenue streams.
  
• Consolidation within the minerals industry along with high barriers to entry-such as resource access and technical expertise-help protect Imerys' pricing power and profitability, enabling improved long-term returns and earnings stability against competitors.
  
• Strong policy support for supply chain localization in Europe and North America, combined with European antidumping measures against Chinese minerals, gives Imerys a competitive advantage, enabling it to win market share and secure long-term contracts, with positive implications for future revenues and market share.

Valuation

• The assumed bearish price target for Imerys is €22.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Imerys's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €38.0, and the most bearish reporting a price target of just €22.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €3.8 billion, earnings will come to €364.5 million, and it would be trading on a PE ratio of 6.6x, assuming you use a discount rate of 9.0%.
  
• Given the current share price of €21.06, the bearish analyst price target of €22.0 is 4.3% higher. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• 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.