Renewed Demand And Market Expansion Will Boost Future Prospects In France, US, And China

Key Takeaways

• Strategic investments in core European markets and audiologist capacity are expected to enhance brand presence and customer acquisition, boosting margins long-term.
  
• Expansion efforts in the U.S. and China aim to drive revenue despite potential initial margin dilution, while bolt-on acquisitions support growth and profitability.
  
• Amplifon faces revenue and margin challenges due to weaker European performance, investment pressures, slower U.S. growth, and reduced M&A contributions.

Catalysts

Engages in the distribution of hearing solutions and the fitting of customized products that help people rediscover various emotions of sound in Europe, the Middle East, Africa, the Americas, and the Asia Pacific.

• Amplifon's anticipated growth in the French market due to expected demand renewal following the RAC 0 reform anniversary is likely to boost revenue in 2025.
  
• Strategic investments in expanding the audiologist capacity and marketing campaigns in core markets like France, Italy, and Spain are expected to enhance brand presence and customer acquisition, potentially improving net margins over time as the initial outlay begins to yield results.
  
• Expansion in the U.S. and China, where Amplifon has increased the number of direct retail stores to 400 and 500 respectively, is expected to drive revenue growth, although margins may initially be diluted due to the scaling efforts.
  
• Expected recovery and renewed growth in the European market, particularly after three years of below-historical performance, are anticipated to deliver improved operating leverage and subsequently enhance profitability in the EMEA region.
  
• A sustained focus on bolt-on M&A activity, with a projected contribution of about 2% to revenue growth, is anticipated to complement organic growth and eventually bolster the earnings profile as newly acquired businesses are integrated and optimized.

Amplifon Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Amplifon's revenue will grow by 7.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.0% today to 8.3% in 3 years time.
• Analysts expect earnings to reach €243.3 million (and earnings per share of €1.09) by about April 2028, up from €145.4 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €325.1 million in earnings, and the most bearish expecting €208 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 31.7x on those 2028 earnings, up from 26.2x today. This future PE is greater than the current PE for the GB Healthcare industry at 21.1x.
• Analysts expect the number of shares outstanding to decline by 0.37% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.74%, as per the Simply Wall St company report.

Amplifon Future Earnings Per Share Growth

Risks

• Amplifon's performance in Europe, its core geographical area, was weaker than expected due to negative outcomes in key markets like France and Spain, which could adversely impact future revenue growth if these markets do not recover as anticipated.
  
• The company's profitability experienced dilution in 2024 due to significant investments in expanding audiologist capacity and launching new advertising campaigns. Although these are expected to yield future benefits, they could pressure net margins if returns do not materialize as projected.
  
• Amplifon faced challenges in maintaining its EBITDA margin, which declined due to lower operating leverage in EMEA and investment-driven dilution from growth in strategic markets like the U.S. and China. Continued margin pressure could impact overall earnings if market conditions remain unfavorable.
  
• Despite strong growth in the U.S. market, Amplifon anticipates slower growth in 2025 compared to previous years. This slowdown in a key market could affect the company's overall revenue and profitability forecasts.
  
• The planned reduction in the contribution from M&A, returning to historical levels after an exceptional year in 2024, could result in lower growth rates. If organic growth does not offset this reduction, it could constrain overall revenue expansion.

Valuation

• The analysts have a consensus price target of €26.976 for Amplifon 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 €34.0, and the most bearish reporting a price target of just €21.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €2.9 billion, earnings will come to €243.3 million, and it would be trading on a PE ratio of 31.7x, assuming you use a discount rate of 8.7%.
• Given the current share price of €16.92, the analyst price target of €26.98 is 37.3% 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.