TOM: Order Win And Index Inclusion Will Support Near-Term Market Recovery

Key Takeaways

• Expansion into new markets and tighter EU regulations are driving strong demand and recurring revenue growth in reverse vending, recycling, and sorting solutions.
  
• Strategic innovation and cost control position Tomra for earnings growth and margin improvement despite recent macroeconomic challenges and delayed customer investment.
  
• Margin pressure and unpredictable growth threaten Tomra due to weak recycling demand, macroeconomic uncertainty, tariff risks, and volatile order flows in key markets.

Catalysts

Provides sensor-based solutions for optimal resource productivity worldwide.

• The upcoming implementation of new deposit return systems in multiple countries (including Poland, Portugal, Spain, Moldova, and ongoing progress in the UK) is set to significantly expand Tomra's addressable market for reverse vending machines and services, supporting strong future revenue growth and higher recurring service revenues.
  
• EU regulations mandating higher recycled content in plastics-rising to 35% by 2030-are expected to substantially increase demand for Tomra's advanced recycling and sorting solutions as the regulatory environment tightens, driving improved long-term order intake and supporting revenue and margin expansion in the Recycling segment.
  
• Rising global focus on automation, quality, and food safety is accelerating investments in sorting technologies across fresh produce categories, as evidenced by record order intake and order backlog in Food; ongoing innovation and restructuring initiatives are enhancing gross and EBITA margins, supporting higher future earnings.
  
• Tomra's strategic push in adjacent verticals-such as reusable packaging collection and advanced feedstock facilities-positions it to capture incremental growth as circular economy models gain adoption, providing diversification of revenue streams and potential for long-term margin improvement.
  
• Despite recent macroeconomic headwinds and tariff impacts delaying customer investments, Tomra is maintaining robust cost control and product innovation, which, coupled with the expected normalization of customer CapEx cycles and favorable secular tailwinds, is likely to drive a rebound in revenues and net margins once uncertainty abates.

Tomra Systems Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Tomra Systems's revenue will grow by 14.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.7% today to 12.4% in 3 years time.
• Analysts expect earnings to reach €254.3 million (and earnings per share of €0.73) by about September 2028, up from €104.8 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €179 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.6x on those 2028 earnings, down from 35.9x today. This future PE is lower than the current PE for the GB Machinery industry at 27.9x.
• 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 7.55%, as per the Simply Wall St company report.

Tomra Systems Future Earnings Per Share Growth

Risks

• Weak order intake and declining backlog in the Recycling division, especially due to continued challenges in the European plastics market and macroeconomic/tariff uncertainty in the U.S., introduce significant revenue and earnings risk if customers keep postponing investments.
  
• Overcapacity and cheap virgin plastics in Asia suppress recycled material prices in Europe, undermining the economic case for recycling and putting downward pressure on Tomra's long-term growth in its core segment, risking margin compression and volatile top-line results.
  
• Heightened macroeconomic and tariff uncertainty, particularly in the U.S. and China, creates an unpredictable business environment for multiple divisions (Recycling and Food), with potential for recurring margin impacts, delayed orders, and reduced earnings visibility.
  
• Tariff exposure and the need to rapidly adapt production locations to navigate trade tensions increase cost pressures and operational complexity, potentially eroding net margins if Tomra cannot consistently pass along cost inflation to customers.
  
• There is ongoing risk of order volatility and growth plateaus in mature Collection markets, while expansions in new markets (e.g., Poland, Portugal, Spain) are subject to timing uncertainties, competitive pressures, and a dependence on regulatory implementation-impacting near
• and mid-term revenue growth and cash flow predictability.

Valuation

• The analysts have a consensus price target of NOK174.983 for Tomra Systems 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 NOK211.29, and the most bearish reporting a price target of just NOK128.16.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €2.1 billion, earnings will come to €254.3 million, and it would be trading on a PE ratio of 21.6x, assuming you use a discount rate of 7.6%.
• Given the current share price of NOK148.8, the analyst price target of NOK174.98 is 15.0% 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.