We Will Invest In Energy Transition And Develop Terminal Infrastructure

Key Takeaways

• Vopak's investment in energy transition and infrastructure expansion is positioned to capitalize on emerging markets and bolster revenue growth.
  
• Strategic diversification through battery technology acquisition and long-term contracts ensures stable revenue streams and supports consistent earnings.
  
• Technical challenges and market volatility, including currency risks, create uncertainties for Vopak, affecting revenue stability and financial flexibility amid global market fluctuations.

Catalysts

An independent tank storage company, stores and handles liquid chemicals, gases, and oil products to the energy and manufacturing markets worldwide.

• The ambition to invest €1 billion towards energy transition infrastructure, including new capacity for low carbon fuels and feedstocks, is expected to contribute to revenue growth by tapping into emerging energy transition markets.
  
• Expansion in industrial and gas terminals, with a projected investment of €1 billion, is aimed at increasing Vopak's footprint in strategic regions, boosting revenue from enhanced capacity and throughput.
  
• The acquisition of a battery development company is a strategic move towards electricity storage, which could positively impact earnings by diversifying revenue streams beyond traditional storage services.
  
• The commissioning of new capacities in China and India, including terminals supporting industrial growth, positions Vopak for increased revenue from growing demand in these fast-paced markets.
  
• The company's strong focus on maintaining a diversified contract portfolio, with about 70% of contracts exceeding three years and 80% of revenues from fixed take-or-pay agreements, provides stable revenue and cash flows, thus supporting consistent earnings.

Koninklijke Vopak Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Koninklijke Vopak's revenue will grow by 2.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 27.8% today to 37.4% in 3 years time.
• Analysts expect earnings to reach €537.3 million (and earnings per share of €4.77) by about May 2028, up from €369.7 million today. The analysts are largely in agreement about this estimate.
• 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 11.5x today. This future PE is lower than the current PE for the GB Oil and Gas industry at 11.5x.
• Analysts expect the number of shares outstanding to decline by 5.67% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.22%, as per the Simply Wall St company report.

Koninklijke Vopak Future Earnings Per Share Growth

Risks

• The EemsEnergyTerminal in the Netherlands faces ongoing technical challenges that have impacted EBITDA, indicating potential continued disruptions affecting earnings until a technical solution is implemented.
  
• Market volatility, particularly in currency exchange rates like the U.S. dollar and euro, poses a translation risk, potentially impacting financial outcomes and making EBITDA forecasts uncertain.
  
• While global oil markets are strong, the chemical distribution terminal markets are soft, especially in parts of Asia, which could impact revenue stability if these conditions persist.
  
• Concerns about the continuation of tariff wars and possible U.S. port calls for China-linked vessels introduce long-term uncertainty in supply chains, which could affect Vopak's infrastructure demand and future revenue.
  
• The IPO process for the AVTL joint venture in India is still subject to conditional approval and market volatility, introducing uncertainty that could impact potential revenue growth and financial flexibility.

Valuation

• The analysts have a consensus price target of €49.625 for Koninklijke Vopak 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 €57.5, and the most bearish reporting a price target of just €40.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €1.4 billion, earnings will come to €537.3 million, and it would be trading on a PE ratio of 10.8x, assuming you use a discount rate of 6.2%.
• Given the current share price of €36.44, the analyst price target of €49.62 is 26.6% 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.