Upcoming Integrations And Sustainable Focus Will Strengthen Position In European Feed Market

Key Takeaways

• Strategic acquisitions and partnerships in Poland and Germany are set to boost market position, expand revenue, and improve margins via increased market presence and synergies.
  
• Focus on sustainability and cost control efforts, including in organic feed production, aligns with market trends, potentially driving improved net margins and earnings growth.
  
• Volatile raw material prices, reduced circular material usage, and divestments challenge sustainability and profitability amidst risks from acquisitions and governmental policy impacts.

Catalysts

Provides feed solutions for conventional and organic livestock farming under the ForFarmers brand in the Netherlands, the United Kingdom, Germany, Poland, Belgium, and internationally.

• The integration of Piast in Poland and the acquisition of Van Triest Veevoeders are expected to boost ForFarmers' market position and expand its use of co-products, leading to potential revenue growth and improved margins due to a stronger presence and diversification in the feed market.
  
• The planned joint venture with team agrar in Germany aims to solidify ForFarmers' position in North Germany, which could drive revenue expansion and synergy-based margin improvements by leveraging shared resources and market access.
  
• ForFarmers' focus on sustainability, such as reducing its carbon footprint and increasing the use of circular raw materials, aligns with consumer and regulatory trends and could enhance brand value and pricing power, potentially improving net margins.
  
• Strategic investments in organic feed production and European markets with high growth potential, like Poland, are designed to capture market share and drive top-line growth, which should positively impact earnings.
  
• The ongoing reorganization and cost control measures, particularly in high-cost areas such as the UK, are expected to sustain margin growth and enhance profitability, contributing to higher earnings over the forecast period.

ForFarmers Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming ForFarmers's revenue will grow by 3.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.1% today to 1.8% in 3 years time.
• Analysts expect earnings to reach €54.6 million (and earnings per share of €0.61) by about February 2028, up from €31.4 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 11.4x on those 2028 earnings, up from 10.7x today. This future PE is lower than the current PE for the GB Food industry at 13.4x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 4.78%, as per the Simply Wall St company report.

ForFarmers Future Earnings Per Share Growth

Risks

• The volatility of raw material and energy prices poses a significant risk, as it greatly impacts revenue, which decreased by €229 million despite volume increases.
  
• The decrease in the proportion of circular raw materials and the divestment in Belgium may hamper their sustainability efforts, impacting long-term revenue growth opportunities and profit margins.
  
• The integration and subsequent performance of acquisitions like Piast and Van Triest carry inherent risks, which may affect net margins and profitability if not effectively managed.
  
• The restructuring in the UK, while showing initial benefits, indicates potential continued operational challenges and costs control issues, affecting net earnings.
  
• Any adverse impacts due to government policies, particularly in key markets like the Netherlands and Poland, may counter efforts for volume and revenue growth, affecting overall financial performance.

Valuation

• The analysts have a consensus price target of €5.0 for ForFarmers 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 €3.0 billion, earnings will come to €54.6 million, and it would be trading on a PE ratio of 11.4x, assuming you use a discount rate of 4.8%.
  
• Given the current share price of €3.8, the analyst price target of €5.0 is 24.0% 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.