India Market Entry And 2025 Projects Will Strengthen Future Prospects

Key Takeaways

• Market entry into India and key project completions worldwide could drive significant long-term revenue growth and boost earnings.
  
• Strategic focus on services, local manufacturing, and refocusing efforts are expected to enhance net margins and operational efficiency.
  
• Cambi faces revenue challenges due to lower order intake, project complexities, and trade barriers, prompting a focus on core strengths to stabilize earnings.

Catalysts

Provides thermal hydrolysis solutions for sewage sludge and organic waste management solutions in Europe, the United States, Asia, Africa, and Oceania.

• Cambi's market entry into India, a region with high growth potential due to rapid urbanization and increasing demand for advanced sludge management solutions, could drive significant long-term revenue growth.
  
• The completion of several key projects in 2025, along with ongoing projects in diverse regions such as Spain, Mumbai, and other international locations, is anticipated to boost revenue and earnings as these projects become operational.
  
• Cambi's strategic focus on strengthening services and upgrades for its installed base, including a heightened demand for service agreements and upgrades, is expected to enhance recurring revenue streams and improve net margins.
  
• The exit from the unprofitable retail soil market allows Cambi to refocus on its core strengths, potentially improving operational efficiency and net margins in the Grønn Vekst segment.
  
• Planned local manufacturing to mitigate impacts from tariffs and evolving regulations could stabilize costs and enhance net margins by ensuring supply chain stability and reducing exposure to fluctuating international trade conditions.

Cambi Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Cambi's revenue will grow by 16.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 14.4% today to 19.5% in 3 years time.
• Analysts expect earnings to reach NOK 319.3 million (and earnings per share of NOK 2.0) by about March 2028, up from NOK 149.3 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 13.8x on those 2028 earnings, down from 19.8x today. This future PE is lower than the current PE for the NO Machinery industry at 20.0x.
• 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 6.85%, as per the Simply Wall St company report.

Cambi Future Earnings Per Share Growth

Risks

• Revenue for the fourth quarter of 2024 was 21% below the same quarter last year due to fewer project milestones in the Technology segment and lower activity levels in the Solutions segment, which may indicate challenges in sustaining consistent revenue growth.
  
• The order intake for 2024 was half of the level from 2023, pointing to a potential decrease in future revenue streams and the need to secure additional contracts to maintain profitability.
  
• The Solutions segment reported weak profitability for the quarter with a negative EBITDA due to unforeseen complexities in upgrade projects, suggesting potential risks in managing project costs and impacting net margins.
  
• Trade barriers such as U.S. steel tariffs could impact project costs, introducing geopolitical and economic uncertainties that could affect earnings due to potential increases in production expenses.
  
• The exit from the retail soil market resulted from weak profitability in that division, reflecting a need to concentrate on core strengths and indicating potential challenges in diversifying revenue sources, which could affect net margins and long-term earnings stability.

Valuation

• The analysts have a consensus price target of NOK22.5 for Cambi 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 NOK1.6 billion, earnings will come to NOK319.3 million, and it would be trading on a PE ratio of 13.8x, assuming you use a discount rate of 6.8%.
• Given the current share price of NOK18.5, the analyst price target of NOK22.5 is 17.8% 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.