Cost Savings And US Shale Expansion Will Drive Future Prospects

Key Takeaways

• Cost reduction programs and deferred project launches may enhance EBIT performance and revenue growth.
  
• Middle East expansion and growth focus in energy sectors could drive regional revenue and future earnings.
  
• Global uncertainties and sector weaknesses challenge Brunel's revenue growth, with cost-cutting strategies raising sustainability concerns amid project delays and execution risks.

Catalysts

Provides secondment, project management, recruitment, and consultancy services in the Netherlands, Australasia, the Middle East, India, rest of Asia, the Americas, DACH region, and internationally.

• The ongoing implementation of cost reduction programs, which are expected to save €20 million annually, is likely to enhance Brunel's net margins and contribute to an improvement in EBIT performance.
  
• Anticipated start of several deferred projects in early next year suggests that there will be a sequential rebound in activity levels, which could contribute to future revenue growth and EBIT improvement.
  
• Expansion into the Saudi Arabian market and strong market position in Qatar within the Middle East, alongside potential growth in the U.S. energy sector, particularly shale, could drive regional revenue increases.
  
• Brunel's focus on energy (both conventional and renewable), which are industries that are expected to experience growth, could provide a tailwind for future earnings and revenue as demand in these sectors rises.
  
• Projected improvement in the U.S. gross margin fueled by underlying activity and operational leverage points to a positive impact on the overall company's gross profit and EBIT margins.

Brunel International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Brunel International's revenue will grow by 8.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.2% today to 3.6% in 3 years time.
• Analysts expect earnings to reach €63.0 million (and earnings per share of €1.1) by about February 2028, up from €30.7 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 10.8x on those 2028 earnings, down from 15.6x today. This future PE is lower than the current PE for the GB Professional Services industry at 15.9x.
• Analysts expect the number of shares outstanding to grow by 0.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.73%, as per the Simply Wall St company report.

Brunel International Future Earnings Per Share Growth

Risks

• The ongoing uncertainties in global markets, such as geopolitical tensions and trade discussions, may lead to clients hesitating on investment projects, impacting Brunel's future revenue growth.
  
• Weakness in the automotive sector, particularly in Germany, has resulted in decreased headcount and increased idle time, negatively affecting gross margins and revenue stability.
  
• Delays in project starts, especially in Asia, are expected to result in a short-term negative impact on EBIT, demonstrating potential vulnerabilities in future earnings.
  
• Cost-cutting measures have provided some relief, but continuous reliance on this strategy raises concerns about the sustainability of net margins and profitability in the absence of revenue growth.
  
• Further delays in anticipated growth projects or large-scale execution risks in sectors such as energy and defense may impede the company’s ability to achieve its long-term revenue and earnings targets.

Valuation

• The analysts have a consensus price target of €11.5 for Brunel International 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 €13.0, and the most bearish reporting a price target of just €10.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €1.8 billion, earnings will come to €63.0 million, and it would be trading on a PE ratio of 10.8x, assuming you use a discount rate of 5.7%.
  
• Given the current share price of €9.48, the analyst price target of €11.5 is 17.6% 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.