Germany Hydrogen And Brazil Oxy Technology Will Fuel Sustainability

Key Takeaways

• Hydrogen use and product innovation boost sustainability and differentiate offerings, enhancing profitability and customer retention.
  
• Strategic expansion and cost control measures drive revenue growth and financial stability, supporting improved margins and cash flow.
  
• Europe market conditions and global tensions could impact growth, while energy costs and trade dynamics pressure margins and revenue.

Catalysts

Manufactures and sells glass packaging products for beverages and food products worldwide.

• Verallia has started using hydrogen as an energy source for two furnaces in Germany, which is cost-effective and reduces CO2 emissions by 8% to 10%. This move supports their decarbonization strategy and could improve net margins by reducing energy costs and enhancing sustainability credentials.
  
• The company is launching additional capacity in Brazil with an advanced oxy-combustion technology, which allows for 18% CO2 emission reduction. This expansion is expected to drive revenue growth in the dynamic Brazilian market, positively impacting earnings.
  
• Verallia's focus on product innovation, such as new bottle designs in different countries, demonstrates their ability to offer premium, tailored solutions that enhance revenue through differentiation and customer retention.
  
• The company is addressing cost challenges and productivity through self-help measures and workforce adaptation in Germany, which is anticipated to reduce costs by €10 million annually. This focus on cost control could improve net margins and cash flow.
  
• Verallia expects to generate more than €200 million in free cash flow for 2025, with a focus on tight control over CapEx and working capital. This cash generation focus supports financial stability and can drive earnings per share growth through potential shareholder returns.

Verallia Société Anonyme Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Verallia Société Anonyme's revenue will grow by 1.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.8% today to 9.0% in 3 years time.
• Analysts expect earnings to reach €325.2 million (and earnings per share of €2.72) by about May 2028, up from €235.7 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €390.6 million in earnings, and the most bearish expecting €279 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.2x on those 2028 earnings, down from 14.7x today. This future PE is greater than the current PE for the FR Packaging industry at 13.1x.
• 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 6.5%, as per the Simply Wall St company report.

Verallia Société Anonyme Future Earnings Per Share Growth

Risks

• The company experienced a negative year-on-year inflation spread due to decreased average selling prices and cost inflation, particularly on energy, impacting revenue and net margins.
  
• Market conditions in Europe and global tensions have led to cautious customer behavior, potentially impacting future revenue and volume growth.
  
• The company's EBITDA margin decreased significantly due to a negative price-cost spread and unfavorable energy costs, which may continue to pressure earnings if not mitigated.
  
• Planned cost adjustments in Germany, including a significant workforce reduction, suggest potential ongoing cost challenges, impacting net margins.
  
• U.S. tariff uncertainties and global trade dynamics create a volatile environment, affecting customer behavior and potentially reducing the company's indirect sales through exports, impacting revenue.

Valuation

• The analysts have a consensus price target of €32.585 for Verallia Société Anonyme 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 €41.0, and the most bearish reporting a price target of just €26.5.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €3.6 billion, earnings will come to €325.2 million, and it would be trading on a PE ratio of 14.2x, assuming you use a discount rate of 6.5%.
  
• Given the current share price of €29.36, the analyst price target of €32.58 is 9.9% 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.