Global Infrastructure And Green Steel Will Expand Market Opportunities

Key Takeaways

• Expanding presence in India, automation, and flexible manufacturing strongly position Vesuvius for higher margins and structural earnings growth.
  
• Decarbonization, digitalization, and tighter industry standards drive premium pricing, recurring revenues, and durable competitive advantage in its markets.
  
• Structural decline in core steel markets, inflationary pressures, and increased competition threaten Vesuvius' revenue streams and profitability despite internal cost and innovation efforts.

Catalysts

Provides molten metal flow engineering and technology services to steel and foundry casting industries worldwide.

• Analyst consensus sees strong market share gains and cost reductions as supportive, but with India now experiencing a rapid, multi-year growth trajectory akin to China's boom 25 years ago, Vesuvius' exposure in the region could more than double revenue and profit contribution over the next decade, delivering structurally higher group earnings and sustained margin expansion due to premium positioning and superior operational leverage.
  
• While the expected £55 million of cost savings by 2028 is seen as margin accretive, rapid automation, offshoring to low-cost countries, and aggressive restructuring in high-cost Europe could drive group margin and free cash flow upside ahead of current estimates, even if core markets remain flat, due to significantly reduced fixed costs and more flexible manufacturing.
  
• The accelerating move toward decarbonization and green steel, with stricter enforcement of quality standards (especially in India and global infrastructure markets), puts Vesuvius in pole position to capture outsized pricing power and premium product adoption, materially lifting ASPs and net margins as customers trade up for advanced, low-emission solutions.
  
• The global manufacturing shift toward digitalization and sensor-driven process control is creating a new, high-margin recurring revenue stream for Vesuvius through industrial automation and value-added services, with adoption rates likely to inflect as customers seek efficiency and compliance, boosting both topline growth and operating leverage.
  
• Industry consolidation and increasing technical requirements in renewable energy, electric vehicles, and smart infrastructure are structurally reducing competition and expanding Vesuvius' addressable market, paving the way for outsized long-term revenue growth and higher return on capital relative to the consensus view.

Vesuvius Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Vesuvius compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Vesuvius's revenue will grow by 3.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 3.9% today to 5.8% in 3 years time.
• The bullish analysts expect earnings to reach £114.3 million (and earnings per share of £0.49) by about August 2028, up from £70.3 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 bullish analyst cohort, the company would need to trade at a PE ratio of 13.8x on those 2028 earnings, up from 12.4x today. This future PE is lower than the current PE for the GB Machinery industry at 22.8x.
• Analysts expect the number of shares outstanding to decline by 6.31% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.16%, as per the Simply Wall St company report.

Vesuvius Future Earnings Per Share Growth

Risks

• Accelerating decarbonisation and ESG regulation in Europe and North America are already leading to declining steel output and continued weakness, particularly in the EU and UK, risking further contraction of Vesuvius' core end-markets, which threatens to depress long-term revenues and regional earnings.
  
• An industry-wide shift toward electric arc furnace steelmaking and greater adoption of recycling and scrap-based production reduces the volume of virgin steel produced and, therefore, permanently limits demand for refractory products, undermining Vesuvius' recurring revenue streams and growth trajectory.
  
• Vesuvius' persistent overexposure to mature and cyclical steel and foundry markets, combined with ongoing cost inflation and only partial success in passing on price increases, is placing sustained pressure on net margins and profitability, as seen in recent trading profit declines and margin compression.
  
• Heightened trade barriers, deglobalisation, and a risk of chronic price pressure from emerging market competitors exacerbate the threat to Vesuvius' pricing power and future profitability, and the company's own cost base restructuring may not fully offset these external industry headwinds.
  
• Despite increased R&D investment and market share gains, slow adoption of next-generation refractory technologies or digital solutions could cause Vesuvius to lose ground to more innovative competitors, further constraining long-term revenue growth and earnings potential.

Valuation

• The assumed bullish price target for Vesuvius is £5.9, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Vesuvius's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £5.9, and the most bearish reporting a price target of just £3.3.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be £2.0 billion, earnings will come to £114.3 million, and it would be trading on a PE ratio of 13.8x, assuming you use a discount rate of 10.2%.
  
• Given the current share price of £3.58, the bullish analyst price target of £5.9 is 39.3% 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.