David Beckham Eyewear And Sustainability Focus Will Improve Future Prospects

Key Takeaways

• Acquisition and licensing agreements, including David Beckham eyewear and other brands, bolster Safilo's brand portfolio for sustained revenue growth and stability.
  
• Emphasis on sustainability and expansion of home brands and B2B platforms strengthens market position and relationships, driving revenue growth and enhancing brand value.
  
• Economic uncertainty and geopolitical tensions, along with North American market challenges and pricing pressures, are key risks that could affect future revenue and margins.

Catalysts

Engages in the design, production, and wholesale distribution of optical frames, sunglasses, sports eyewear, goggles, and helmets in North America, Europe, the Asia Pacific, and internationally.

• The acquisition of the perpetual license for the eyewear by David Beckham significantly strengthens Safilo's brand portfolio, expected to contribute approximately 50% of total revenue and potentially drive future revenue growth.
  
• The successful renewal and stabilization of licensing agreements, including Under Armour and Dsquared2, securing roughly 80% of the license portfolio through 2030 and 2031, positions Safilo for sustained revenue stability and growth.
  
• Expansion of B2B platforms like You&Safilo, which has been adopted by more than 28,000 clients, enhances efficiency and strengthens relationships with partners, likely impacting revenue positively through better market penetration and service quality.
  
• A strong focus on home brands, particularly Carrera and David Beckham, with strategic marketing and distribution expansions is poised to enhance brand appeal and drive revenue growth through increased sales in key geographic markets.
  
• Commitment to sustainability, with significant reductions in Scope 1, 2, and 3 emissions and increased adoption of bio-based materials, positions Safilo favorably among environmentally conscious consumers and investors, potentially improving both net margins and brand value over time.

Safilo Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Safilo Group's revenue will grow by 2.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.2% today to 3.8% in 3 years time.
• Analysts expect earnings to reach €40.8 million (and earnings per share of €0.1) by about July 2028, up from €22.3 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 17.2x on those 2028 earnings, down from 20.9x today. This future PE is lower than the current PE for the GB Luxury industry at 22.2x.
• 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 12.18%, as per the Simply Wall St company report.

Safilo Group Future Earnings Per Share Growth

Risks

• Economic uncertainty, geopolitical tensions, and shifting consumer behaviors have been mentioned as significant headwinds, which could impact overall revenue and market stability.
  
• Sales declined by 2.3% at constant exchange rate due to unfavorable market dynamics in North America and the conclusion of the Jimmy Choo license, potentially affecting future revenue streams.
  
• Intensified price competition in Blenders' market segment required rapid adaptation, which may pressure net margins if price competition persists.
  
• North American market faced a decline in sales due to election-year uncertainties, soft sports business environment, and cautious wholesale purchasing, potentially impacting future earnings.
  
• Potential tariff implications in the U.S. could impact cost structures and margins, particularly given a significant portion of goods are sourced from China.

Valuation

• The analysts have a consensus price target of €1.2 for Safilo 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 €1.5, and the most bearish reporting a price target of just €1.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €1.1 billion, earnings will come to €40.8 million, and it would be trading on a PE ratio of 17.2x, assuming you use a discount rate of 12.2%.
• Given the current share price of €1.13, the analyst price target of €1.2 is 6.2% 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.