Expanding Into Natural Antioxidants And Efficiency Improvements Will Drive Future Success

Key Takeaways

• Strategic initiatives and operational optimizations are expected to significantly enhance EBITDA margins and net margins.
  
• Expanding product adjacencies in food will drive substantial revenue growth while reducing complexity and boosting cash generation.
  
• Volatile costs, currency fluctuations, and regulatory changes threaten revenue and margins, while weak demand in certain segments could hinder earnings growth.

Catalysts

Provides lactic acid and lactic acid derivatives, other ferment, functional enzyme blends, minerals, vitamins, and algae ingredients worldwide.

• Corbion expects organic adjusted EBITDA growth of over 25% in 2025 from continued operations, driven by operational optimization, efficiency improvements, and market opportunities, impacting earnings.
  
• A focus on expanding product adjacencies in food, such as natural antioxidants and mold inhibitors, is expected to contribute significantly to revenue growth.
  
• Anticipation of better pricing dynamics and operational leverage in its TotalEnergies Corbion joint venture could lead to improved EBITDA margins, impacting joint venture earnings favorably.
  
• Strategic initiatives for complexity reduction, procurement savings, and further in-sourcing in Functional Ingredients & Solutions are set to enhance net margins.
  
• Aiming for positive free cash flow of over €85 million in 2025, Corbion is targeting reduced working capital levels, enhancing overall cash generation capabilities.

Corbion Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Corbion's revenue will grow by 5.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.6% today to 8.3% in 3 years time.
• Analysts expect earnings to reach €125.8 million (and earnings per share of €2.16) by about March 2028, up from €45.9 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 14.2x on those 2028 earnings, down from 26.5x today. This future PE is lower than the current PE for the GB Chemicals industry at 18.8x.
• Analysts expect the number of shares outstanding to decline by 0.42% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Corbion Future Earnings Per Share Growth

Risks

• Volatile raw material and freight prices have created uncertainties, which are expected to remain in the near term, potentially impacting revenue and net margins.
  
• Depreciation of currencies such as the Japanese yen and Brazilian real has negatively impacted sales growth, and continued currency fluctuations might affect future revenue and earnings.
  
• Negative pricing dynamics and commoditization in certain applications have pressured margins in the PLA joint venture, impacting earnings.
  
• The Biomedical segment has shown weaker demand, particularly from agrochemicals and the semiconductor market, which could negatively affect revenue growth.
  
• Regulatory changes or tariffs, particularly in the U.S., could impact input costs and pricing strategies, leading to potential risks for net margins and earnings.

Valuation

• The analysts have a consensus price target of €26.167 for Corbion 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 €33.0, and the most bearish reporting a price target of just €17.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €1.5 billion, earnings will come to €125.8 million, and it would be trading on a PE ratio of 14.2x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of €21.02, the analyst price target of €26.17 is 19.7% 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.