Scaling Production And Supply Chain Will Unlock Aerospace Prospects

Key Takeaways

• Strategic expansion into aerospace, industrial, and defense markets may drive increased revenue and enhance profit margins through economies of scale and diversified income.
  
• Operational efficiency improvements and entry into major OEM partnerships could stabilize earnings and support significant long-term financial growth.
  
• Delays in approval cycles and supply chain bottlenecks threaten revenue growth, while reliance on defense contracts and tariffs pose risks to stability and margins.

Catalysts

Engages in 3D printing of metal alloys for commercial aerospace, defense, and industrial sectors in Europe and the United States.

• Norsk Titanium anticipates significant growth in 2025, with plans to increase serial production from 54 to over 120 parts, aiming to generate $70 million to $90 million in annual recurring revenue, indicating a strong projected increase in revenue.
  
• The company is expanding its market presence in large sectors such as aerospace and industrial, including oil and gas and semiconductor markets, potentially leading to increased revenue streams and improved net margins as they leverage economies of scale.
  
• The strategic expansion of the supply chain, including multiple qualified sources for key processes, aims to alleviate bottlenecks and improve operational efficiency, which could enhance net margins and profitability.
  
• With robust cash reserves and strategic investments to support rapid production scaling, Norsk Titanium is positioned to achieve its revenue target of $150 million by 2026, potentially increasing earnings as they stabilize operations and grow market share.
  
• Entry into the defense spares and repairs market, alongside potential partnerships with major OEMs like Airbus and Boeing, could provide substantial new revenue opportunities and stabilize earnings through diversified income sources.

Norsk Titanium Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Norsk Titanium's revenue will grow by 229.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from -468.1% today to 21.2% in 3 years time.
• Analysts expect earnings to reach $34.1 million (and earnings per share of $0.04) by about August 2028, up from $-21.0 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 12.4x on those 2028 earnings, up from -6.4x today. This future PE is lower than the current PE for the NO Aerospace & Defense industry at 38.7x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.9%, as per the Simply Wall St company report.

Norsk Titanium Future Earnings Per Share Growth

Risks

• The longer-than-planned customer approval cycles and delays in part transitions can negatively affect future revenue growth, as seen by missing the year-end target for parts in serial production, impacting the reliability of expected revenue streams.
  
• The supply chain bottlenecks that caused a revenue miss in Q4 highlight operational risks that can potentially reduce future revenues and profits by creating delays in fulfilling customer orders.
  
• The reliance on defense and government contracts introduces risk due to uncertainty around government procurement processes, including possible delays in formal purchase orders, affecting revenue stability and predictability.
  
• The potential imposition of tariffs between the U.S. and the E.U. could increase costs and impact net margins if Norsk Titanium needs to absorb costs to remain competitive or if the passing of costs to customers results in decreased demand.
  
• The heavy reliance on expanding into industrial and defense markets suggests a concentration risk; failure to penetrate these new markets or to expand customer bases could lead to underperformance against projected earnings and revenue targets.

Valuation

• The analysts have a consensus price target of NOK3.6 for Norsk Titanium 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 $160.9 million, earnings will come to $34.1 million, and it would be trading on a PE ratio of 12.4x, assuming you use a discount rate of 6.9%.
• Given the current share price of NOK1.7, the analyst price target of NOK3.6 is 52.9% 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.