Brazil Expansion And Higher Margin Supplements Will Drive Long Term Earnings Power

Catalysts

About Fevara

Fevara develops, manufactures and distributes specialist research backed nutritional supplements for grazing livestock across key global cattle markets.

What are the underlying business or industry changes driving this perspective?

• The planned build out of a repeatable low moisture block manufacturing blueprint in Brazil positions Fevara to move early in a structurally underpenetrated 200 million head cattle market. This is expected to support sustained double digit revenue growth as the new plant ramps and additional hubs are added.
• Ongoing mix shift away from volatile low margin commodity feed toward patented, branded supplements such as Crystalyx and Smartlic should continue to lift group EBIT margins toward management’s 10 to 15 percent target range. This would drive faster earnings growth than topline growth.
• Stronger farm level demand generation, consolidated U.K. sales teams and revitalised U.S. key account coverage are increasing market share in otherwise flat or modestly declining herds. This allows Fevara to grow volumes and gross profit even when national livestock numbers are subdued.
• Procurement initiatives, factory integration in the U.K., the operational turnaround of Oklahoma and outsourced bolus production in France are embedding a structurally lower cost base. This improves operating leverage and supports further expansion in net margins as volumes scale.
• New research and university trials tailored to local grass, soil and genetics, particularly in Brazil, enhance product differentiation and pricing power. This enables Fevara to capture premium positioning and improve return on capital employed and long term earnings resilience.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Fevara's revenue will grow by 8.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.8% today to 7.6% in 3 years time.
• Analysts expect earnings to reach £7.5 million (and earnings per share of £0.15) by about December 2028, up from £3.0 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 18.4x on those 2028 earnings, down from 22.2x today. This future PE is greater than the current PE for the GB Food industry at 16.4x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.07%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The U.S. beef herd remains in contraction longer than expected due to sustained high beef prices and tariff related uncertainty, which would delay the anticipated herd rebuild and structurally cap the number of animals Fevara can supplement, limiting volume growth and revenue expansion in a key market over the medium term.
• The strategy to pivot away from commodity feed into branded, research backed supplements may not fully offset ongoing structural pressures in mature or slowly declining Northern Hemisphere livestock markets, particularly in the U.K., which could constrain long term top line growth and prevent EBIT margins from reaching the stated 10 to 15 percent target range.
• Execution risk in Brazil, including delays in building and commissioning the low moisture block plant, challenges in tailoring products to local conditions or slower than expected adoption by farmers, could mean the 200 million head market remains underpenetrated by Fevara for longer than planned, depressing the forecast contribution to group revenue, EBITDA and return on capital employed.
• Greater reliance on a small number of specialist partners and joint ventures for manufacturing and distribution, such as Vétalis for boluses and New Zealand export arrangements, increases exposure to counterparties whose underperformance or strategic divergence could dilute profitability, pressure net margins and complicate the planned scaling of higher value products.
• The ambition to grow EBIT from roughly GBP 5 million today to approximately GBP 15 million across the U.K., U.S. and Brazil requires tight control of central costs, working capital and leverage. Any slippage in cost discipline, pension related cash outflows or weaker than expected operational efficiencies would erode operating leverage, lower net margins and reduce earnings growth versus expectations.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of £1.79 for Fevara based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be £99.2 million, earnings will come to £7.5 million, and it would be trading on a PE ratio of 18.4x, assuming you use a discount rate of 7.1%.
  
• Given the current share price of £1.3, the analyst price target of £1.79 is 27.4% 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.