Circular Economy Trends Will Drive Advanced Recycling Adoption

Key Takeaways

• Tomra's advanced technologies and local adaptation advantage position it for outsized growth and margin gains as deposit return schemes and automation accelerate globally.
  
• Expansion into high-margin, recurring revenue streams and rising demand for sustainable materials uniquely position Tomra for sustained long-term earnings growth.
  
• Multiple industry, regulatory, and market pressures threaten Tomra's core business model, earnings stability, and long-term revenue growth amidst rising competition and shifting customer demand.

Catalysts

Provides sensor-based solutions for optimal resource productivity worldwide.

• While analyst consensus acknowledges upcoming deposit return schemes as growth drivers, they may be underestimating the speed and scale of rollout in new markets like Poland, Portugal, Spain, and Moldova, where Tomra's leading technology and deep local adaptation could drive revenue significantly beyond current forecasts and raise margins through dominant early market share.
  
• Analysts broadly agree restructuring and cost savings will lift Food segment profitability, but the demonstrated record-high order intake, a fifteen percent jump in backlog, and rapid margin expansion signal that net margins and earnings could see sustained double-digit increases, especially as automation demand accelerates in core categories such as citrus and potatoes.
  
• Tomra's move into adjacent businesses with the launch of its advanced feedstock and reuse operations, exemplified by the new Norwegian plant and urban reusable packaging pilots, positions the company to tap into entirely new streams of high-margin, recurring revenues, both from material resale and software-driven contract services.
  
• As global supply chains and large consumer goods companies face mounting regulatory and consumer pressures to source sustainable materials, Tomra's advanced AI-based sorting and sensor technologies are likely to become the standard, enabling substantial premium pricing power and boosting both revenue and gross margin over the long term.
  
• Growing scarcity of raw materials and persistent inflation in commodity prices are set to structurally increase the economic imperative for advanced recycling solutions, uniquely positioning Tomra to outgrow the market and capture disproportionately higher earnings as both governments and private players accelerate capital investment in next-generation sorting infrastructure.

Tomra Systems Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Tomra Systems compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Tomra Systems's revenue will grow by 20.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 7.7% today to 12.9% in 3 years time.
• The bullish analysts expect earnings to reach €304.2 million (and earnings per share of €1.04) by about July 2028, up from €104.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 21.9x on those 2028 earnings, down from 33.7x today. This future PE is lower than the current PE for the GB Machinery industry at 25.2x.
• 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 7.59%, as per the Simply Wall St company report.

Tomra Systems Future Earnings Per Share Growth

Risks

• Weakness in the European plastic recycling market, along with decreased order intake and continued macroeconomic and tariff uncertainty, signals that Tomra's recycling division faces headwinds that could suppress revenues and increase earnings volatility over time.
  
• The growing overcapacity of virgin plastics production in Asia and the lack of robust regulatory mandates for recycled content have depressed recycled material prices and undermined plastics recycling economics, threatening Tomra's core value proposition and putting long-term revenue growth at risk.
  
• Intensifying competition from both established global players and new local entrants in emerging markets such as Poland and Portugal may create pricing pressure, potentially compressing gross margins and negatively impacting long-term profitability.
  
• Global trade tensions, shifting tariff regimes, and ongoing macroeconomic uncertainty are leading to delays in investment decisions across customers in North America and Europe, increasing unpredictability in Tomra's order backlog and posing sustained risks to recurring revenues and net margin stability.
  
• Evolving regulations and public policy trends toward reusable or biodegradable packaging and new digital deposit solutions could reduce structural demand for Tomra's reverse vending machines, narrowing the company's addressable market and raising the risk of slower top-line growth in the long run.

Valuation

• The assumed bullish price target for Tomra Systems is NOK214.43, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Tomra Systems's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NOK214.43, and the most bearish reporting a price target of just NOK130.07.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be €2.4 billion, earnings will come to €304.2 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 NOK141.3, the bullish analyst price target of NOK214.43 is 34.1% 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.