Semiconductor Capacity Expansion And Decarbonization Will Unlock New Opportunities

Key Takeaways

• Expanded capacity and ongoing cost reductions position the company for margin growth and improved operating leverage as demand recovers and global electrification accelerates.
  
• Focus on advanced materials, innovation, and agile manufacturing boosts product differentiation, pricing power, and recurring revenues across high-growth, sustainability-driven end markets.
  
• Prolonged sector weakness, rising competition, and shifting technology challenge profitability, while slow demand recovery and underused investments threaten margins and future growth.

Catalysts

Manufactures and sells various carbon and ceramic products.

• The company has nearly completed a significant capex program to expand semiconductor production capacity, positioning it to capture strong, double-digit market growth once inventory destocking is resolved and electrification/EV trends accelerate; this provides a clear pathway to revenue growth and higher operating margins as the cycle turns.
  
• The group's ongoing simplification programme, which will deliver £27 million of annual cost savings in 2026 and additional benefits from further upcoming optimization, creates a structurally lower fixed-cost base-enhancing net margins and operating leverage as demand recovers.
  
• Morgan Advanced Materials is well-placed to benefit from the global shift toward decarbonization and electrification, with advanced ceramics and carbon products solving complex material challenges in aerospace, clean energy, and power electronics; as customers' sustainability efforts intensify, this is likely to support growth in both revenues and pricing power.
  
• Investments in proprietary material science and co-development with customers have resulted in a differentiated, higher-margin product portfolio (e.g., for advanced jet engines and miniaturized medical devices), enabling margin expansion and stickier, recurring earnings as these segments continue to grow.
  
• Modular, agile manufacturing capabilities and data-driven operational improvements allow the company to rapidly scale capacity and improve delivery as end-markets recover, supporting both top-line growth and sustainable expansion of returns on invested capital.

Morgan Advanced Materials Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Morgan Advanced Materials's revenue will grow by 2.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.6% today to 7.8% in 3 years time.
• Analysts expect earnings to reach £88.2 million (and earnings per share of £0.25) by about September 2028, up from £27.8 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 10.1x on those 2028 earnings, down from 20.7x today. This future PE is lower than the current PE for the GB Machinery industry at 22.9x.
• Analysts expect the number of shares outstanding to decline by 1.27% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.99%, as per the Simply Wall St company report.

Morgan Advanced Materials Future Earnings Per Share Growth

Risks

• Prolonged weakness in the semiconductor segment-particularly in silicon carbide semiconductors due to elevated inventory across the supply chain-continues to negatively impact sales volumes and profitability, with no clear timing for recovery. This poses a risk of underutilized capacity and weak revenue contribution from what is normally a high-margin business, dragging down overall group margins and earnings.
  
• Ongoing market softness in core industrials, metals, petrochemical, and automotive sectors, despite recent stabilization, raises concerns about long-term demand recovery; a sluggish rebound or a prolonged downturn would constrain top-line growth and limit opportunities to achieve operating leverage and scale efficiencies, thereby impacting revenue and net margins.
  
• Rising price competition and potential commoditization in core product lines (e.g., ceramics and carbon), especially if customers gain greater supply options or exert more buyer power during market downturns, may pressure average selling prices and compress margins, leading to weaker earnings quality and inhibited margin expansion.
  
• Customer deferrals and uncertain contract volumes-particularly in fast-growing but currently depressed adjacent markets (like semiconductors and certain healthcare applications)-increase the risk of reduced utilization of recent capacity investments, potentially resulting in stranded costs, delayed returns on capital expenditure, and lower future cash generation.
  
• Technological disruption or shifts in customer requirements-such as advancements in alternative materials (e.g., polymers, new composites, or biomaterials)-could erode demand for traditional products, while any underinvestment or misalignment in R&D may cause Morgan to lose market relevance or pricing power, ultimately pressuring long-term revenue growth and profitability.

Valuation

• The analysts have a consensus price target of £2.5 for Morgan Advanced Materials 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 £3.0, and the most bearish reporting a price target of just £2.1.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £1.1 billion, earnings will come to £88.2 million, and it would be trading on a PE ratio of 10.1x, assuming you use a discount rate of 10.0%.
• Given the current share price of £2.07, the analyst price target of £2.5 is 17.2% 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.