Expansion In RENWEX Will Meet Growing Demand For Peat-Free Soil Blends

Key Takeaways

• Cambi's strong order backlog and upcoming U.K. investment cycle are poised to sustain and boost long-term revenue growth.
  
• Expanding production capacity and strategic Solutions segment growth aim to enhance revenue and improve net margins steadily.
  
• Cambi faces potential revenue challenges due to reliance on smaller awards, decreased order backlog, and exposure to currency fluctuations impacting earnings and liquidity.

Catalysts

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

• Cambi's robust order backlog of NOK 1.3 billion provides a stable foundation for future revenue, with significant parts expected to convert to revenue over the next two years, supporting sustained revenue growth.
  
• The upcoming AMP8 investment cycle in the U.K., starting January 1, 2025, is expected to drive infrastructure upgrades, positioning Cambi to secure new contracts and boost long-term revenue.
  
• Increasing production capacity and expansion in RENWEX, especially for peat-free soil blends, is set to meet growing demand, which could enhance revenue and improve net margins through operational efficiencies.
  
• The reactivation of stalled projects, like the one in Lviv, Ukraine, signifies potential for revenue rebound and growth, as Cambi effectively converts these projects into completed sales.
  
• Cambi's strategic focus on expanding the Solutions segment, particularly through service upgrades and maintenance, aims to provide steady cash flows and potentially improve net margins as installed bases age.

Cambi Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Cambi's revenue will grow by 12.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.3% today to 19.0% in 3 years time.
• Analysts expect earnings to reach NOK 292.0 million (and earnings per share of NOK 1.82) by about January 2028, up from NOK 134.8 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.9x on those 2028 earnings, down from 19.2x today. This future PE is lower than the current PE for the NO Machinery industry at 18.9x.
• 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 6.52%, as per the Simply Wall St company report.

Cambi Future Earnings Per Share Growth

Risks

• Cambi reported no new notable contract awards during the quarter, indicating dependence on smaller awards and change orders, which might affect future revenue streams.
  
• The absence of significant construction contracts within the Solutions segment by the end of the quarter could potentially impact long-term earnings growth.
  
• Cambi's order backlog decreased from the previous quarter, which could signal potential future revenue challenges if new contracts are not secured.
  
• Cambi experiences exposure to currency fluctuations due to a significant portion of revenue being in foreign currencies, which could impact net margins and earnings.
  
• The operational cash flow was negative due to fewer milestone payments from construction projects, highlighting potential liquidity risks if similar patterns persist.

Valuation

• The analysts have a consensus price target of NOK21.0 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 NOK1.5 billion, earnings will come to NOK292.0 million, and it would be trading on a PE ratio of 13.9x, assuming you use a discount rate of 6.5%.
• Given the current share price of NOK16.15, the analyst's price target of NOK21.0 is 23.1% 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.