55% Solar Expansion Will Diversify Energy Offerings In High-Growth Sector

Key Takeaways

• Rubis's focus on renewable energy and solar projects enhances diversification and positions it for future growth in a high-demand sector.
  
• Strategic divestments and economic stability in key markets are expected to boost revenue, earnings, and operational efficiencies.
  
• Economic instability in Africa and higher development costs in renewable energy could negatively impact revenue, margins, and profitability for Rubis.

Catalysts

Engages in the operation of bulk liquid storage facilities for commercial and industrial customers in Europe, Africa, and the Caribbean.

• Rubis's strategic focus on renewable energy, particularly the 55% year-over-year increase in its solar projects, is poised to bolster future revenue growth by diversifying its energy offerings and enhancing its portfolio in a high-growth sector.
  
• The expected synergy between Rubis's Energy Distribution and Renewable Energy divisions, particularly in developing solar projects, could lead to improved net margins through operational efficiencies and enhanced market positioning.
  
• The sale of the Rubis Terminal is anticipated to generate a significant capital gain, expected to impact net income positively in the latter half of 2024, thereby supporting earnings growth.
  
• The company's ongoing ability to generate strong cash flow and its low leverage ratio suggest potential for continued investment in growth opportunities, likely enhancing future earnings stability and expansion.
  
• Anticipated improvements in the political and economic stability in key markets, like Haiti and Kenya, may lead to higher future volumes and contribute to a more robust revenue stream and margin recovery.

Rubis Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Rubis's revenue will grow by 3.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 4.7% today to 4.4% in 3 years time.
• Analysts expect earnings to reach €316.5 million (and earnings per share of €3.31) by about February 2028, up from €312.6 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €399 million in earnings, and the most bearish expecting €283.8 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.8x on those 2028 earnings, up from 8.6x today. This future PE is greater than the current PE for the GB Gas Utilities industry at 8.6x.
• 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 5.97%, as per the Simply Wall St company report.

Rubis Future Earnings Per Share Growth

Risks

• Political and economic instability in Africa, particularly in Kenya, may negatively impact fuel consumption and operating conditions, which could harm revenue and net margins in the region.
  
• Bad weather conditions affecting electricity production in France and the decrease in spot prices for electricity may lead to lower-than-expected earnings from renewable energy operations.
  
• The impact of increasing foreign exchange losses and fluctuating FX rates, particularly in countries like Kenya and Nigeria, could adversely affect margins and earnings.
  
• Higher development costs in the renewable energy sector, needed to ensure future growth, could weigh on current EBITDA generation and profitability.
  
• Rising interest rates and increased financial charges, especially in regions like Kenya, could elevate debt servicing costs and reduce overall net income.

Valuation

• The analysts have a consensus price target of €33.019 for Rubis 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 €50.0, and the most bearish reporting a price target of just €25.13.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €7.3 billion, earnings will come to €316.5 million, and it would be trading on a PE ratio of 12.8x, assuming you use a discount rate of 6.0%.
  
• Given the current share price of €26.12, the analyst price target of €33.02 is 20.9% 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.