Footprint Upgrade And Boeing's Production Increase Will Strengthen Market Position

Key Takeaways

• Strategic acquisitions and expansion in Europe and Brazil strengthen Aperam's competitive position and market share, supporting future revenue and earnings growth.
  
• Growth in aerospace demand and potential favorable European trade policies could enhance margins and bolster pricing power, further improving earnings.
  
• Challenging European market conditions, increased competition, and economic uncertainties could pressurize Aperam's margins and revenue, with execution risks on profitability targets.

Catalysts

Produces and sells stainless and specialty steel products worldwide.

• The completion of the footprint upgrade, along with the acquisition of Universal Stainless & Alloy Products, is expected to enhance Aperam's value chain, leading to a more competitive position in Europe and an increased market share in Brazil, likely impacting future revenue growth.
  
• The anticipated stabilization and potential rebound in European market prices, along with a decrease in destocking and low inventory levels, could improve margins and earnings in upcoming quarters.
  
• Potential favorable changes in European trade defense measures and the commission's openness to reviewing safeguard rules might strengthen Aperam's pricing power and protect market share, positively impacting revenue and net margins.
  
• The expected ramp-up in the aerospace sector, particularly the production increase at Boeing, could drive higher demand for Aperam's high-margin alloy products, contributing to earnings growth.
  
• Aperam's strategic focus on growing its alloys business with a planned €30 million CapEx for 2025 aims at expanding its footprint and increasing market share, especially in the aerospace sector, which supports long-term revenue and earnings increase.

Aperam Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Aperam's revenue will grow by 6.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.7% today to 4.5% in 3 years time.
• Analysts expect earnings to reach €338.6 million (and earnings per share of €4.71) by about March 2028, up from €231.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €410.5 million in earnings, and the most bearish expecting €245 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.2x on those 2028 earnings, down from 9.9x today. This future PE is lower than the current PE for the GB Metals and Mining industry at 13.9x.
• Analysts expect the number of shares outstanding to grow by 0.06% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.67%, as per the Simply Wall St company report.

Aperam Future Earnings Per Share Growth

Risks

• The competitive environment in Europe is challenging, with potential risks from Acerinox ramping up production, which could lead to price pressure and margin squeezes, potentially impacting Aperam's revenue and net margins.
  
• The European market has been experiencing price pressures due to destocking, which may lead to lower inventory valuations and affect short-term revenues and earnings.
  
• The company's guidance of €100 million to €120 million EBITDA per quarter relies on achieving a significant uplift by 2025, which suggests potential execution risks and impacts on profitability if this target is not met.
  
• The effectiveness of trade defense measures, such as safeguards in Europe, remains uncertain. While these could potentially support pricing if implemented, failure to do so could continue to expose Aperam to low-priced imports, affecting revenue.
  
• The global economic environment, with high interest rates and energy prices, political instability, and the dependency on a recovery in economic conditions could present risks to demand stability and margins, affecting overall earnings potential.

Valuation

• The analysts have a consensus price target of €31.685 for Aperam 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 €40.0, and the most bearish reporting a price target of just €27.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €7.4 billion, earnings will come to €338.6 million, and it would be trading on a PE ratio of 8.2x, assuming you use a discount rate of 6.7%.
  
• Given the current share price of €31.6, the analyst price target of €31.68 is 0.3% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.