Indonesian Expansion And Energy Materials Focus Will Drive Future Success

Key Takeaways

• Strategic geographic expansion and focus on energy materials could significantly enhance future earnings and EBITDA.
  
• Cost reduction and noncore asset divestment are poised to improve net margins and support debt reduction.
  
• Orbia faces revenue and profit challenges across segments due to unfavorable market conditions, high interest rates, and geopolitical factors affecting investment and demand.

Catalysts

Orbia Advance Corporation, S.A.B. de C.V.

• Orbia is implementing a $250 million per year cost reduction program, expected to yield $165 million per year in savings by 2027. This will positively impact net margins.
  
• Recent organic growth investments are anticipated to contribute approximately $150 million per year to EBITDA between 2025 and 2027, enhancing earnings.
  
• The strategic geographic expansion, including a new manufacturing site in Indonesia, aims to tap into high-growth areas, potentially boosting revenue.
  
• Noncore asset divestment plans, targeting cash proceeds of $150 million to $200 million by 2026, could support debt reduction and improve net margins.
  
• Orbia's focus on its energy materials growth opportunities, such as in fluor and energy materials, could significantly enhance future EBITDA and earnings.

Orbia Advance Corporation. de Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Orbia Advance Corporation. de's revenue will grow by 4.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.8% today to 2.3% in 3 years time.
• Analysts expect earnings to reach $200.1 million (and earnings per share of $0.11) by about February 2028, up from $137.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $268 million in earnings, and the most bearish expecting $136 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 28.1x on those 2028 earnings, up from 8.7x today. This future PE is greater than the current PE for the MX Chemicals industry at 8.5x.
• 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 20.97%, as per the Simply Wall St company report.

Orbia Advance Corporation. de Future Earnings Per Share Growth

Risks

• Orbia's revenues and EBITDA have decreased year-over-year due to lower prices and unfavorable product mix, impacting profitability and revenue growth.
  
• Continued market headwinds, including excess PVC capacity in China and a slowdown in construction activity due to high interest rates, pressure revenue streams in Polymer Solutions.
  
• Investment delays in Latin America, driven by government changes, are affecting volumes in Building & Infrastructure, potentially impacting revenue and earnings from this segment.
  
• High inventory levels among key accounts in the Connectivity Solutions segment, along with high interest rates, have led to weaker market conditions, affecting demand recovery and revenue.
  
• The Precision Agriculture business faces challenges due to low crop prices and high interest rates in the U.S. and Turkey, potentially impacting the segment’s revenue growth and margins.

Valuation

• The analysts have a consensus price target of MX$34.389 for Orbia Advance Corporation. de 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 MX$88.34, and the most bearish reporting a price target of just MX$15.91.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $8.5 billion, earnings will come to $200.1 million, and it would be trading on a PE ratio of 28.1x, assuming you use a discount rate of 21.0%.
  
• Given the current share price of MX$12.91, the analyst price target of MX$34.39 is 62.5% 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.