Big 3 Transformation And Gallium Venture Will Strengthen Future Prospects

Key Takeaways

• Metlen's transformation plan, involving organizational changes and acquisitions, aims to drive organic growth and increase earnings.
  
• Gallium investments and electricity supply expansion are expected to enhance revenue, margins, and market presence.
  
• Geopolitical tensions and market volatility, particularly in energy and rare metals, combined with increased debt and costly acquisitions, pose risks to financial stability.

Catalysts

Operates in metallurgy, sustainable engineering solution, renewables and storage development, and power and gas sectors in Greece, the European Union, Hellas, and internationally.

• Metlen Energy & Metals anticipates substantial organic growth in its existing businesses, which is expected to considerably increase turnover starting from the first quarter of 2025. This initiative is likely to boost revenue.
  
• The company is undergoing a transformation, code-named Big 3, involving internal organizational changes along with significant organic growth and potential acquisitions. This is expected to drive future earnings growth.
  
• The notable gallium investment, fueled by favorable pricing due to export restrictions from China, is anticipated to deliver high margins, potentially becoming one of the most profitable segments, thus impacting net margins positively.
  
• Expansion in the electricity supply business to reach a 30% market share through aggressive market strategies might enhance Metlen's revenue growth and earnings.
  
• The upcoming listing on the London Stock Exchange (LSE) anticipated in Q3 2025 should improve stock liquidity and possibly attract new investors, positively impacting stock valuation.

Metlen Energy & Metals Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Metlen Energy & Metals's revenue will grow by 9.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.8% today to 11.1% in 3 years time.
• Analysts expect earnings to reach €837.8 million (and earnings per share of €6.16) by about February 2028, up from €615.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.7x on those 2028 earnings, up from 8.3x today. This future PE is lower than the current PE for the GB Industrials industry at 12.0x.
• Analysts expect the number of shares outstanding to decline by 0.22% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.54%, as per the Simply Wall St company report.

Metlen Energy & Metals Future Earnings Per Share Growth

Risks

• The geopolitical tensions, particularly the potential instability in Ukraine and Russia, present significant risks that could impact the global energy market, affecting revenue and profitability.
  
• The company's increased debt, primarily for investment in renewables, although at competitive rates, could strain financials if not offset by equivalent income streams, impacting net margins and earnings.
  
• The volatility in natural gas and wholesale electricity prices could hinder profitability in the Greek utility business, impacting net margins and overall earnings.
  
• The rare metals market, particularly gallium, is subject to volatility and political influence, such as China's export controls, which could impact cost structures and revenue growth.
  
• The dependence on potentially costly acquisitions or aggressive market strategies to achieve market share goals in the energy supply sector poses financial risks and could impact net margins.

Valuation

• The analysts have a consensus price target of €47.144 for Metlen Energy & Metals based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €7.5 billion, earnings will come to €837.8 million, and it would be trading on a PE ratio of 10.7x, assuming you use a discount rate of 11.5%.
  
• Given the current share price of €36.96, the analyst price target of €47.14 is 21.6% 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.