Recurring Revenue Model And CarouselAI Will Shape Resilience

Key Takeaways

• The shift to a subscription-based model and innovative products bolster predictable revenue and improve margins.
  
• Operational efficiencies and a strong customer base drive growth, maintaining high margins despite potential tariff impacts.
  
• Tariff and economic uncertainties, combined with a new service model, may hinder revenue stability and growth, affecting short-term profitability and cash flow predictability.

Catalysts

Provides robotic and software technology in Norway, Germany, Europe, the United States, Asia, and internationally.

• AutoStore-as-a-Service model is expected to drive predictable, recurring revenue, with flexible contracts that are longer-term, ranging from 7-10 years, increasing the total cumulative revenue compared to the traditional CapEx model. This shift to a subscription-based approach is a significant catalyst for revenue growth.
  
• New product innovations, such as CarouselAI and the Essentials Software Package, are positioned to address industry bottlenecks and enhance performance, contributing to a boost in ARR (annual recurring revenue) and improving net margins by offering high-quality recurring revenue streams.
  
• Measures to streamline operations and reduce annualized operating expenses by approximately $10 million should positively impact net margins and overall profitability. This operational efficiency is achieved while still investing in long-term growth.
  
• The large installed base and customer portfolio provide opportunities for a land-and-expand strategy, potentially fueling revenue growth from existing customers, which is currently over 70% of order intake.
  
• Despite the uncertainty posed by tariffs, AutoStore's products maintain strong gross margins exceeding 70%, which should shield earnings against potential cost increases and improve long-term resilience, assuming continued demand and customer retention.

AutoStore Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming AutoStore Holdings's revenue will grow by 6.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 20.6% today to 23.7% in 3 years time.
• Analysts expect earnings to reach $155.0 million (and earnings per share of $0.04) by about May 2028, up from $113.3 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $211 million in earnings, and the most bearish expecting $31.2 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.9x on those 2028 earnings, up from 13.3x today. This future PE is greater than the current PE for the NO Machinery industry at 14.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.56%, as per the Simply Wall St company report.

AutoStore Holdings Future Earnings Per Share Growth

Risks

• The uncertainty caused by evolving tariff situations, particularly affecting 25% of revenue from the U.S., could create hesitancy among customers to make commitments, potentially impacting revenue stability and growth.
  
• Global economic volatility and broader macroeconomic uncertainties are leading to more cautious capital investment by customers, which could delay revenue realization and affect future earnings.
  
• A slower-than-expected start to the year, with revenue and EBITDA margins reflecting ongoing market challenges, suggests a risk of lower profitability in the short term, which could influence net margins negatively.
  
• The shift to AutoStore-as-a-Service model changes the timing of revenue recognition from upfront to over the contract's life, potentially delaying revenue recognition and impacting short-term financial results.
  
• Despite a strong order backlog, any further delays in capital investments due to geopolitical tensions and economic uncertainty could extend timelines for revenue conversion and affect cash flow predictability.

Valuation

• The analysts have a consensus price target of NOK8.421 for AutoStore Holdings 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 NOK14.01, and the most bearish reporting a price target of just NOK4.97.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $654.3 million, earnings will come to $155.0 million, and it would be trading on a PE ratio of 21.9x, assuming you use a discount rate of 7.6%.
  
• Given the current share price of NOK4.65, the analyst price target of NOK8.42 is 44.8% 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.