Ongoing Acquisitions And Water-Jetting Momentum Will Create Future Opportunities

Key Takeaways

• Strong Water-Jetting performance and business inefficiency improvements could enhance revenue growth and stabilize net margins.
  
• Strategic acquisitions and CapEx normalization may boost revenue and free cash flow, improving profitability.
  
• Persistent market headwinds, inventory challenges, and margin concerns in key divisions could strain profitability and affect financial stability.

Catalysts

Engages in the manufacturing and selling of high-pressure pumps in Italy, Europe, North America, Pacific area, and internationally.

• The Water-Jetting division is experiencing strong performance, which, if sustained, could lead to revenue growth. Given its high profitability, this could positively impact net margins as well.
  
• Efforts to manage business inefficiencies, particularly within the Water-Jetting division, are showing improvements, which could stabilize and potentially improve net margins moving forward.
  
• CapEx normalization is ongoing, with plans to further reduce investments in 2025. This should increase free cash flow, potentially improving net earnings by reducing capital expenditure drag.
  
• Ongoing and future acquisitions fitting the group’s strategy present opportunities for revenue and earnings growth, particularly where technological excellence and synergies are realized.
  
• Positive momentum in the order intake for the Water-Jetting segment and the expectation of a mobile hydraulics recovery in agriculture could drive future revenue increases, impacting overall profitability positively as volumes recover.

Interpump Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Interpump Group's revenue will grow by 3.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.9% today to 11.9% in 3 years time.
• Analysts expect earnings to reach €271.0 million (and earnings per share of €2.53) by about March 2028, up from €227.1 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 23.3x on those 2028 earnings, up from 16.9x today. This future PE is greater than the current PE for the GB Machinery industry at 13.2x.
• 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 10.75%, as per the Simply Wall St company report.

Interpump Group Future Earnings Per Share Growth

Risks

• The Hydraulics division experienced a significant sales decrease of around 14% on an organic basis, with a drop in EBITDA profitability by more than 30%, indicating a challenging business environment that could adversely impact overall revenue and earnings.
  
• The 2025 sales guidance ranges from minus 5% to plus 1%, reflecting uncertainty and potential revenue instability, particularly if market conditions do not improve.
  
• The company is facing inventory challenges, with high levels relative to net sales and a recent need for significant inventory adjustments, which could strain working capital and affect cash flow.
  
• Potential margin dilution is a concern in the Water-Jetting division due to a product mix shift towards less profitable complete systems, which may hinder overall profitability despite sales growth.
  
• Continued weakness in the Hydraulics division and limited visibility on customer inventory levels suggest persistent market headwinds, posing a risk to achieving projected net margins and profitability targets.

Valuation

• The analysts have a consensus price target of €43.762 for Interpump Group 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 €40.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €2.3 billion, earnings will come to €271.0 million, and it would be trading on a PE ratio of 23.3x, assuming you use a discount rate of 10.8%.
• Given the current share price of €36.02, the analyst price target of €43.76 is 17.7% 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.