Water-Jetting Growth And Critical Acquisitions Enhance Profitability And Global Expansion

Key Takeaways

• The company's divisions are experiencing growth and resilience, with effective cost adjustments and strategic restructuring boosting operational strength and profitability.
  
• Strategic acquisitions and decreased capital expenditure are improving cash flow and margins, enhancing the company's global network and future revenue prospects.
  
• Declining organic sales and inefficiencies in Hydraulics and Water-Jetting divisions may hinder future growth and profitability despite strategic acquisitions.

Catalysts

Engages in the manufacture and marketing of high-pressure piston pumps in Italy, rest of Europe, North America, the Far East and Pacific area, and internationally.

• The Water-Jetting division is experiencing strong growth, with an organic increase in sales by 9% in the third quarter and a strong order backlog expected to sustain growth, possibly impacting future revenue positively.
  
• Effective cost adjustment activities in the Hydraulics division have limited the impact of sales declines on EBITDA margins, demonstrating operational resilience that could protect future profitability.
  
• The successful restructuring of acquired entities, such as Waikato, is improving profitability in the Water-Jetting division, which could enhance future earnings.
  
• The decrease in CapEx levels, which is becoming more noticeable, is expected to improve free cash flow generation and reduce the capital burden on net sales, potentially enhancing future net margins.
  
• Recent strategic acquisitions are expected to strengthen Interpump’s global network and product catalog, likely driving future revenue growth and sustaining earnings through improved synergies.

Interpump Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Interpump Group's revenue will grow by 4.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.2% today to 13.3% in 3 years time.
• Analysts expect earnings to reach €318.5 million (and earnings per share of €2.9) by about December 2027, up from €215.4 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 21.7x on those 2027 earnings, down from 22.1x today. This future PE is lower than the current PE for the GB Machinery industry at 23.6x.
• Analysts expect the number of shares outstanding to grow by 0.91% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.91%, as per the Simply Wall St company report.

Interpump Group Future Earnings Per Share Growth

Risks

• A consistent decline in organic sales across the Hydraulics division, due to ongoing stagnation and normalization in key applications like agriculture and construction, indicates potential challenges in achieving future revenue growth.
  
• The persistent sales drop in the Hydraulics division is impacting EBITDA margins, with noted reductions in profitability, suggesting potential risks to net income if countermeasures do not sufficiently mitigate the impacts.
  
• Temporary inefficiencies in production flow and sales mix issues, especially in the Water-Jetting division, could hinder operating efficiency and affect future profit margins.
  
• Despite positive trends in the Water-Jetting division, a lack of broader visibility into future market conditions and their impact on order intake could pose risks to sustained revenue growth and profitability.
  
• Although recent acquisitions have focused on strategic alignment and operational efficiency, the failure to secure larger deals in a favorable M&A environment might limit long-term growth potential and thereby impact anticipated revenue and earnings expansion.

Valuation

• The analysts have a consensus price target of €47.75 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 €55.0, and the most bearish reporting a price target of just €43.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be €2.4 billion, earnings will come to €318.5 million, and it would be trading on a PE ratio of 21.7x, assuming you use a discount rate of 9.9%.
• Given the current share price of €44.68, the analyst's price target of €47.75 is 6.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.