La Marzocco-Porsche Collaboration And New Product Innovations Ignite Global Growth

Key Takeaways

• Strategic partnerships and innovative product launches are set to drive future revenue growth and improve brand penetration globally.
  
• Expanding collaborations and market agreements in the coffee segment could significantly boost future revenues.
  
• Tariffs, market uncertainties, and high A&P investments threaten margins, while logistics and weather trends impact revenue, risking profitability if not mitigated.

Catalysts

Produces and distributes coffee machines, food preparation and cooking machines, air conditioning and heating, domestic cleaning and ironing, and home care products.

• The consolidation of La Marzocco and expansion into the household business contributed significantly to a 14% revenue growth, indicating potential for continued revenue increases as these integrations further mature.
  
• The emphasis on innovations like the cold brew technology and strategic partnerships (e.g., La Marzocco's collaboration with Porsche) suggests future growth in revenue and possibly improved net margins due to premium product offerings.
  
• The launch of new products across brands, like the Rivelia, Magnifica EVO Next, Nutribullet innovations, and the complete Kenwood Go collection, alongside substantial media investments, is expected to drive future revenue growth and enhance brand penetration globally.
  
• The strategic shift in marketing, leveraging a large-scale social media impact and e-commerce performance marketing, is likely to bolster revenue growth through increased consumer engagement and market share.
  
• Ongoing negotiations and the anticipated rollout of 500 Eversys units for Starbucks, coupled with the opening of four new market agreements with Nespresso, could significantly impact future revenues in the professional and household coffee segments.

De'Longhi Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming De'Longhi's revenue will grow by 6.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.5% today to 9.6% in 3 years time.
• Analysts expect earnings to reach €386.9 million (and earnings per share of €2.36) by about December 2027, up from €282.0 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 22.1x on those 2027 earnings, up from 16.1x today. This future PE is greater than the current PE for the GB Consumer Durables industry at 11.6x.
• Analysts expect the number of shares outstanding to grow by 2.9% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.69%, as per the Simply Wall St company report.

De'Longhi Future Earnings Per Share Growth

Risks

• The company faces potential risks from tariffs on goods imported from China, with about 7-8% of its COGS presently affected, which could increase costs and compress margins if not effectively mitigated.
  
• Eversys, part of their professional division, is experiencing a double-digit decline due to past one-off deals, particularly in China, and remains subject to market uncertainty, potentially impacting revenue and profitability if weakness continues.
  
• The comfort and seasonal product segment is currently experiencing a double-digit negative trend, which could continue if mild weather persists, impacting overall group revenue despite its smaller contribution.
  
• Although logistics costs are easing, they remain higher than the previous year, potentially affecting net margins if not adequately offset by higher sales or cost-saving measures.
  
• Despite increase, significant A&P investments could strain operating margins if not matched by proportional revenue growth, especially since the plan to capture market opportunities might not yield immediate returns.

Valuation

• The analysts have a consensus price target of €37.34 for De'Longhi 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 €43.5, and the most bearish reporting a price target of just €32.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be €4.0 billion, earnings will come to €386.9 million, and it would be trading on a PE ratio of 22.1x, assuming you use a discount rate of 11.7%.
  
• Given the current share price of €30.2, the analyst's price target of €37.34 is 19.1% 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.