Health And Nutrition And TotalEnergies Partnership Will Unlock Future Prospects

Key Takeaways

• Strong growth in Health & Nutrition and the TotalEnergies joint venture indicates potential for continued revenue and volume increases, especially in Asia.
  
• Operational efficiencies and disciplined investing boost margins and free cash flows, supporting financial stability and long-term shareholder value.
  
• Dis-synergies from a possible Health & Nutrition split, pricing pressures, and currency fluctuations could negatively impact margins and profitability.

Catalysts

Provides lactic acid and lactic acid derivatives, food preservation solutions, functional blends, and algae ingredients in the Netherlands, the United States, Asia, rest of North Americas, the rest of Europe, the Middle East, and Africa.

• The Health & Nutrition division showcased remarkable sales growth of 16.2% and is expected to continue driving volume/mix growth, supporting revenue increase and margin stability through innovation and valued product offerings.
  
• The TotalEnergies Corbion joint venture experienced strong organic sales growth of 21.9%, driven by market demand in Asia, indicating potential future revenue and volume growth as regulatory incentives in China may further boost PLA demand by 2026.
  
• Corbion's commitment to operational efficiencies and cost-saving measures resulted in adjusted EBITDA margin improvements in its Functional Ingredients & Solutions division, up from 7.5% to 12.1%, suggesting a positive impact on future net margins and earnings.
  
• The company's investment strategy focusing on disciplined capital expenditures aims for continued positive free cash flow, targeting over €85 million for 2025, enhancing long-term financial stability and shareholder value.
  
• With a strategic review underway, potential portfolio adjustments or business restructuring could unlock additional value, potentially impacting future earnings and stock valuation positively.

Corbion Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Corbion's revenue will grow by 3.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.6% today to 7.7% in 3 years time.
• Analysts expect earnings to reach €109.0 million (and earnings per share of €1.51) by about May 2028, up from €45.9 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €127.4 million in earnings, and the most bearish expecting €88 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.2x on those 2028 earnings, down from 23.8x today. This future PE is lower than the current PE for the GB Chemicals industry at 20.3x.
• Analysts expect the number of shares outstanding to decline by 0.39% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.19%, as per the Simply Wall St company report.

Corbion Future Earnings Per Share Growth

Risks

• The potential separation of the Health & Nutrition and Fresh divisions, as mentioned by a major shareholder, could lead to dis-synergies and possibly impact net margins if the split is mishandled or if shared resources and synergies are lost.
  
• The drop in fish oil prices, which contribute to pricing pressures in the Algae Nutrition segment, may lead to negative pricing developments in Health & Nutrition in future quarters, impacting revenue and profit margins.
  
• The effect of foreign exchange volatility, particularly with the U.S. dollar, could negatively impact full-year EBITDA, thereby affecting overall earnings if currency trends are unfavorable.
  
• Significant exposure to freight rate fluctuations for shipments from Europe to the U.S. could increase costs, especially if global trade volumes shift, which would negatively impact net margins if freight costs rise unexpectedly.
  
• PLA joint venture pricing has halted erosion, but no short-term price recovery is expected, potentially constraining revenue growth and affecting profitability if input costs or competitive pressures change adversely.

Valuation

• The analysts have a consensus price target of €24.333 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 €14.0.
• 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 €109.0 million, and it would be trading on a PE ratio of 15.2x, assuming you use a discount rate of 6.2%.
• Given the current share price of €18.79, the analyst price target of €24.33 is 22.8% 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.