Asian Market Expansion And Increased Manufacturing Will Strengthen Future Prospects

Key Takeaways

• Robust growth in Asia and expanded manufacturing capacity suggest strong future revenue potential and improved production capabilities.
  
• Resilience after a cyberattack and innovation in Make-up and Skincare signal earnings stability and sustained demand.
  
• Intercos faces revenue and margin challenges due to flat volumes in key markets, margin issues in the full-service segment, and potential U.S. tariff changes.

Catalysts

Intercos S.p.A., together with its subsidiaries, creates, produces, and markets cosmetics and skin care products worldwide.

• Intercos is experiencing robust growth in Asia, with Chinese and Korean markets growing significantly despite overall market slowdowns, suggesting potential future revenue increases from these expanding regional markets.
  
• The company's Make-up and Skincare segments are both witnessing double-digit growth, driven by emerging brands and multinationals, indicating strong future revenue streams from customer diversification and innovation.
  
• Intercos is expanding manufacturing capacity globally, such as doubling its Korean plant and expanding facilities in China, which could enhance future production capabilities, leading to increased revenues and improved net margins.
  
• Despite a challenging start to the year due to a cyberattack, Intercos managed to recover its EBITDA loss by the third quarter and achieve double-digit growth, showcasing resilience that could translate into improved earnings stability.
  
• High order entries in recent months and ongoing innovation in Make-up and Skincare signal continued momentum, implying sustained demand and potential future revenue growth beyond 2024.

Intercos Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Intercos's revenue will grow by 8.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.5% today to 6.8% in 3 years time.
• Analysts expect earnings to reach €86.4 million (and earnings per share of €0.91) by about February 2028, up from €45.1 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 26.7x on those 2028 earnings, down from 30.4x today. This future PE is lower than the current PE for the IT Personal Products industry at 28.9x.
• 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 10.29%, as per the Simply Wall St company report.

Intercos Future Earnings Per Share Growth

Risks

• Intercos faces a challenging economic environment in key markets like the U.S. and China, which are experiencing flat or declining volumes. This could impact future revenue growth if these trends continue.
  
• The mix of clients in the full-service segment, particularly with prestige customers, is resulting in lower than expected margins due to the packaging component. This could impact net margins negatively if it persists long-term.
  
• The company's Hair & Body segment, despite previous strong growth, is experiencing a notable deceleration, potentially resulting in lower market penetration and impacting overall revenue growth.
  
• The decline in the Skincare order intake could indicate a potential slowdown in new customer acquisition or repeat sales, which might impact future earnings if not mitigated.
  
• There are risks associated with potential tariff changes in the U.S. market post-election, which could affect Intercos' cost structure and ultimately net margins.

Valuation

• The analysts have a consensus price target of €17.886 for Intercos 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 €20.0, and the most bearish reporting a price target of just €16.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €1.3 billion, earnings will come to €86.4 million, and it would be trading on a PE ratio of 26.7x, assuming you use a discount rate of 10.3%.
  
• Given the current share price of €14.26, the analyst price target of €17.89 is 20.3% 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.