Digitization And Warehouse Automation Will Improve Future Efficiency In US Beauty Market

Key Takeaways

• Decentralization and digitization efforts are expected to boost operational efficiencies, enhance relationships, and improve revenue, earnings, and net margins.
  
• Strategic consolidation, sustainability initiatives, and Beauty segment expansion forecast increased EBITDA, robust revenue growth, and higher productivity.
  
• Financial strain from geopolitical tensions, debt obligations, and market challenges limits B&S Group's profitability, flexibility, and strategic investment capacity.

Catalysts

Distributes consumer goods worldwide.

• The decentralization into autonomous and accountable segments is expected to enhance strategic optionality and operational efficiencies, potentially boosting overall value creation, which can positively impact revenue and earnings.
  
• Digitization efforts, especially in enhancing supplier and client interactions, are anticipated to strengthen relationships and drive operational excellence, which could improve net margins.
  
• The strategic decision to consolidate European Liquor wholesale operations aims to reduce the number of warehouses and optimize working capital, potentially increasing EBITDA margins in 2025.
  
• The focus on expanding the Beauty segment's B2C market, particularly in the U.S., supported by warehouse automation, suggests potential for robust revenue growth.
  
• Implementing sustainability and HR KPIs aims to drive efficiency and productivity, potentially leading to higher earnings and improved net margins in the future.

B&S Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming B&S Group's revenue will grow by 5.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.7% today to 2.7% in 3 years time.
• Analysts expect earnings to reach €77.1 million (and earnings per share of €0.92) by about April 2028, up from €39.9 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 9.8x on those 2028 earnings, down from 12.5x today. This future PE is lower than the current PE for the NL Retail Distributors industry at 12.5x.
• Analysts expect the number of shares outstanding to grow by 1.79% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.5%, as per the Simply Wall St company report.

B&S Group Future Earnings Per Share Growth

Risks

• The financial performance of the Liquors segment is being negatively impacted by geopolitical tensions and reliance on specific SKUs for the Asian market, leading to significant one-off costs which ultimately affect net margins and earnings.
  
• The company faces increased financial expenses due to higher average debt positions and rising interest rates, which could impact earnings and the ability to generate net profit growth.
  
• The Travel Retail segment continues to underperform compared to pre-pandemic levels, with factors such as completion of refurbishment at Schiphol and the cessation of operations in Copenhagen affecting revenue growth and profit margins.
  
• B&S Group’s leverage and interest coverage ratios are close to its banking covenants, indicating potential financial strain and limited flexibility, which can impact overall financial health and profitability.
  
• The current debt levels and obligations related to minority buyouts and deferred payments may limit strategic financial maneuverability, putting pressure on cash flow and affecting future investments and profitability.

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 €2.8 billion, earnings will come to €77.1 million, and it would be trading on a PE ratio of 9.8x, assuming you use a discount rate of 6.5%.
• Given the current share price of €5.95, the analyst price target of €7.12 is 16.5% 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.