The Integration Of Vidrala's Operations And Decarbonization Initiatives Will Drive Future Success

Key Takeaways

• The acquisition and electric furnace commissioning are expected to enhance earnings by boosting revenue and reducing costs.
  
• Strategic initiatives like Latin America expansion and lighter glass products could drive significant revenue and margin improvements.
  
• Economic challenges, persistent trade tensions, negative cost-price spread, capacity shutdowns, and currency depreciation could collectively pressure Verallia's revenue and earnings.

Catalysts

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

• The acquisition of Vidrala's Italian activity and the integration of its operations are expected to create synergies, benefiting revenue and potentially improving net margins.
  
• The commissioning of the first electric furnace in Cognac, reducing CO2 emissions and positioning Verallia as a leader in decarbonization, could enhance earnings by appealing to environmentally conscious customers and reducing operational costs.
  
• The launch of lighter glass bottles with the Air range offer is gaining recognition, potentially increasing revenue through higher sales volumes and contributing to better net margins via material cost savings.
  
• Continued focus on cost control and productivity improvements, with PAP savings above the targeted 2% of cash costs, is expected to support stronger net margins and boost earnings.
  
• Expansion in Latin America with strong market demand and the addition of new furnaces in Brazil could drive significant revenue growth and improved earnings in the region.

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 9.4% in 3 years time.
• Analysts expect earnings to reach €339.0 million (and earnings per share of €2.87) by about April 2028, up from €235.7 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as €390.8 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.0x on those 2028 earnings, down from 14.5x today. This future PE is greater than the current PE for the FR Packaging industry at 12.9x.
• 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

• Economic challenges in key markets, particularly in Europe, where demand was softer than expected, could lead to lower revenues and earnings.
  
• Persistent trade tensions, especially affecting export-oriented end markets like spirits, could create additional uncertainty, impacting future revenues.
  
• The spread between costs and pricing remains negative, primarily due to the carryover effect of price decreases from 2024 and selective price cuts in 2025, which could impact net margins.
  
• Ongoing capacity shut downs across Europe, including the shutdown of 11 furnaces, reflect market caution, suggesting lower production and potentially reduced revenue growth.
  
• The depreciation of currencies, such as in Argentina, and fluctuations in exchange rates could negatively influence earnings if not adequately hedged.

Valuation

• The analysts have a consensus price target of €33.689 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 €27.5.
• 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 €339.0 million, and it would be trading on a PE ratio of 14.0x, assuming you use a discount rate of 6.5%.
• Given the current share price of €29.1, the analyst price target of €33.69 is 13.6% 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.