Digitization And Automation Will Improve Operational Efficiency

Key Takeaways

• Ongoing automation and digitization initiatives are expected to boost efficiency, improving net margins and earnings through better cost control and risk management.
  
• Strategic focuses on acquisitions and market segment integrations aim to enhance revenue growth and future EBITDA, particularly in Travel Retail and personal care sectors.
  
• Challenges in the Liquors segment, increased net debt, and proximity to banking covenants may restrict B&S Group's financial flexibility and future growth opportunities.

Catalysts

Distributes consumer goods worldwide.

• Ongoing digitization and operational excellence initiatives aimed at enhancing management information, cost control, and risk management are expected to improve efficiency, potentially boosting net margins and earnings.
  
• Investment in fully automated warehouses in the U.S. is anticipated to enhance efficiency and reduce operating expenses, benefiting both cost structures and working capital management, thus positively affecting net margins and earnings.
  
• The strategic focus on integrating European wholesale liquors for logistical synergies is likely to lower working capital requirements and improve cost efficiency, which could enhance net margins and earnings.
  
• Expansion and growth within the Travel Retail segment, with traffic still below pre-corona levels, suggest potential revenue growth as the market continues to recover, potentially increasing turnover and earnings.
  
• The focus on strategic value creation through potential acquisitions and inventory investments in Personal Care and Food segments may enhance revenue growth and drive future EBITDA improvements.

B&S Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming B&S Group's revenue will grow by 6.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.8% today to 2.5% in 3 years time.
• Analysts expect earnings to reach €68.4 million (and earnings per share of €0.75) by about February 2028, up from €40.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €54.5 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.1x on those 2028 earnings, up from 8.8x today. This future PE is greater than the current PE for the NL Retail Distributors industry at 8.8x.
• Analysts expect the number of shares outstanding to decline by 1.76% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.08%, as per the Simply Wall St company report.

B&S Group Future Earnings Per Share Growth

Risks

• The Liquors segment has experienced a significant decrease in turnover and continues to face challenging market conditions, impacting overall revenue growth and profit margins.
  
• The company has incurred a substantial increase in net debt, primarily due to investments in inventory and acquisitions, which may restrict its financial flexibility and impact net margins and earnings.
  
• There is a close proximity to banking covenants with the net debt-to-EBITDA leverage ratio at 3.4, which poses a risk to financial stability and could potentially limit future growth opportunities impacting earnings.
  
• External economic cycles and market volatility, particularly in global trade within the Liquors segment, present ongoing risks that can affect B&S Group's revenue stability and EBITDA performance.
  
• Plans for integrating warehouses and other operational efficiencies are not fully realized yet, which could affect future cost savings and operational margins if not implemented effectively.

Valuation

• The analysts have a consensus price target of €7.125 for B&S Group 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 €2.7 billion, earnings will come to €68.4 million, and it would be trading on a PE ratio of 10.1x, assuming you use a discount rate of 7.1%.
  
• Given the current share price of €4.16, the analyst price target of €7.12 is 41.5% 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.