Nautilus Technology And AI Integration Will Improve Sustainability In Aquaculture

Key Takeaways

• Innovations in sea-based and post-smolt technology are expected to drive revenue and efficiency through reduced mortality and enhanced production.
  
• Strategic expansion in land-based systems and digital segment synergy integration positions AKVA for enhanced revenue and market reach.
  
• Revenue shortfalls, reliance on large contracts, digital segment volatility, and financial strains could affect AKVA group's future earnings and financial flexibility.

Catalysts

Designs, purchases, manufactures, assembles, sells, and installs technology products; and provides rental and consulting services for the aquaculture industry.

• AKVA Group's growth in its Sea Based segment, driven by innovations such as the deep farming solution and Nautilus technology, is anticipated to expand revenue due to the significant order backlog and heightened demand for lower mortality and improved fish quality.
  
• The company's focus on post-smolt technology is expected to fuel growth by improving capacity utilization and reducing mortality, thereby boosting earnings potential from optimized production processes and enhanced operational efficiency.
  
• The successful acquisition and integration of AI capabilities from Observe provide potential for significant synergies in AKVA’s Digital segment, with expected improvements in net margins through the enhancement of existing products and leveraging advanced digital solutions.
  
• AKVA's strategic expansion into Land Based systems, supported by key contracts like the Cermaq Chile RAS facility and the Laxey project, could significantly enhance revenue streams by meeting increasing demand for more sustainable and efficient aquaculture solutions.
  
• Planned commercialization efforts and resource reallocation in the Digital segment are poised to drive top-line growth, with anticipated EBITDA margin improvements from scalable digital sales and a broadening market reach.

AKVA group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming AKVA group's revenue will grow by 10.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.1% today to 4.3% in 3 years time.
• Analysts expect earnings to reach NOK 209.2 million (and earnings per share of NOK 5.74) by about March 2028, up from NOK 112.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting NOK234.7 million in earnings, and the most bearish expecting NOK187 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.8x on those 2028 earnings, down from 20.1x today. This future PE is lower than the current PE for the GB Machinery industry at 20.0x.
• Analysts expect the number of shares outstanding to decline by 0.35% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.52%, as per the Simply Wall St company report.

AKVA group Future Earnings Per Share Growth

Risks

• AKVA group's revenue for Q4 was lower than expected, largely due to delayed order intake that did not translate into immediate revenue, which could impact future revenue projections if similar delays occur.
  
• The company's Land-Based segment showed significant growth due to increased activity and improved project margins. However, the success seems dependent on specific large contracts, suggesting potential volatility in future earnings if such contracts are not consistently secured.
  
• The Digital segment exhibited a decline in both revenue and order intake, with non-recurring upgrades contributing to revenue fluctuations. This inconsistency may affect the net margins negatively if not addressed through increased sales and commercial focus.
  
• While AKVA has seen strong order intake in Sea Based activities, more than half of their revenue comes from OpEx-based recurring revenue, which means any potential disruptions in ongoing operations could significantly affect their profit margins.
  
• AKVA group's high financial costs and currency losses have been reported, along with increased net interest-bearing debt driven by net working capital changes and other investments, which could strain future earnings and limit financial flexibility.

Valuation

• The analysts have a consensus price target of NOK83.333 for AKVA 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 NOK4.8 billion, earnings will come to NOK209.2 million, and it would be trading on a PE ratio of 17.8x, assuming you use a discount rate of 8.5%.
• Given the current share price of NOK62.4, the analyst price target of NOK83.33 is 25.1% 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.