Expansion Into Netherlands And Legislative Changes Will Create Future Opportunities

Key Takeaways

• Expansion into brownfield opportunities, particularly in the Netherlands, and new market entries suggest strong potential for revenue growth and increased market share.
  
• Anticipated legislative changes and increased deposit values in key markets are expected to significantly increase revenue from program services.
  
• Legislative complexities and delays in markets like Portugal and Scotland could hinder deposit scheme implementation and revenue growth, with challenges in North American expansion adding strain.

Catalysts

Designs, develops, manufactures, assembles, markets, sells, leases, and services reverse vending machines (RVM) to collect and process used beverage containers primarily in the Netherlands, North America, and rest of Europe.

• The expansion into brownfield opportunities and new market entry, particularly in the Netherlands with the successful deployment of Quantum units, suggests strong potential for revenue growth through increased machine sales and market share.
  
• The wave of countries implementing deposit return schemes presents significant opportunities for Envipco to increase sales and service revenues as demand for their recycling machines and services grows, positively impacting long-term revenue.
  
• The acquisition of Sensibin, which broadens Envipco’s product portfolio by adding new technology suited for the expanding convenience store segment, is expected to drive revenue growth by tapping into new market segments and enhancing product offerings.
  
• The ongoing improvements in gross margins, with a target to reach 40% by the end of 2025, indicate a strong focus on operational efficiency and cost management, likely contributing to higher net margins.
  
• Anticipated legislative changes and increased deposit values in various markets, such as the U.S. states of New York and Massachusetts, are expected to drive higher collection volumes and consequently increase revenue from program services.

Envipco Holding Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Envipco Holding's revenue will grow by 40.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.0% today to 20.4% in 3 years time.
• Analysts expect earnings to reach €66.6 million (and earnings per share of €0.98) by about March 2028, up from €2.3 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 8.5x on those 2028 earnings, down from 131.8x today. This future PE is lower than the current PE for the NL Machinery industry at 78.5x.
• 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 5.89%, as per the Simply Wall St company report.

Envipco Holding Future Earnings Per Share Growth

Risks

• The complexity and delays in legislation, as seen with Portugal and Scotland, could slow the implementation of new deposit return schemes, affecting future revenue growth in those regions.
  
• Sensibin acquisition and related expenses, such as nonrecurring items and severance payments, increased operating expenses significantly. This could impact net margins if not managed effectively.
  
• Envipco operates in a working capital-intensive industry. Any mismanagement of inventory or receivables could negatively impact liquidity and earnings.
  
• Flat revenue growth in North America, despite improvements in collection volumes in Connecticut, indicates potential challenges in market expansion and revenue generation in this critical region.
  
• While legislative tailwinds exist, the complexity of schemes like in Poland and the delay in U.S. deposit fee increases could impact the anticipated market share and consequently revenue projections.

Valuation

• The analysts have a consensus price target of €8.336 for Envipco Holding based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €326.2 million, earnings will come to €66.6 million, and it would be trading on a PE ratio of 8.5x, assuming you use a discount rate of 5.9%.
• Given the current share price of €5.35, the analyst price target of €8.34 is 35.8% 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.