Krill Oil And Algae Products Will Drive Future Success

Key Takeaways

• Strong growth in Human Health Ingredients and new product introductions provide significant future revenue opportunities and support revenue growth outlook.
  
• Strategic market re-entry and operational restructuring improve sales prospects and cost efficiency, setting a foundation for future growth.
  
• Operational challenges and market uncertainties, especially in Korea and China, threaten Aker BioMarine's revenue growth and profitability across key segments and products.

Catalysts

Engages in harvesting krill and supplies krill-derived products worldwide.

• Strong growth in the Human Health Ingredients segment, with a 25% revenue increase led by krill oil products, is expected to continue, contributing significantly to revenue growth in future quarters.
  
• The introduction of new products, such as PL+ and algae in the innovation portfolio, presents significant future revenue opportunities, particularly as new distribution agreements and production challenges are resolved.
  
• The restructuring program post-Feed Ingredients transaction aims to optimize costs and increase operational efficiency, which will likely improve net margins and set a strong foundation for future growth.
  
• The re-entry into the Korean market and resolution of import challenges in China are anticipated to boost sales in these regions, enhancing overall revenue in the coming years.
  
• Expansion and increasing consumer adoption of krill oil products in new global markets, supported by continuing innovation and marketing efforts, are expected to drive substantial revenue growth and improve earnings in future periods.

Aker BioMarine Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Aker BioMarine's revenue will grow by 10.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from -7.2% today to 10.0% in 3 years time.
• Analysts expect earnings to reach $27.0 million (and earnings per share of $0.3) by about March 2028, up from $-14.3 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 22.2x on those 2028 earnings, up from -33.4x today. This future PE is greater than the current PE for the NO Food industry at 21.1x.
• 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 5.94%, as per the Simply Wall St company report.

Aker BioMarine Future Earnings Per Share Growth

Risks

• Unforeseen production challenges in the Algae segment have limited the ability to meet full demand, potentially impacting revenue growth if these technical issues persist.
  
• The discontinuation of the fish oil business with Walmart due to unacceptably high raw material prices resulted in a significant drop in Consumer Health Products revenue, which could continue to negatively affect total sales if similar pricing issues arise or persist.
  
• Delays in launching new marketing campaigns in the Korean market, compounded by political turmoil and unstable inventory strategies, add uncertainty to revenue recovery in this key market.
  
• Regulatory and importation challenges in China have not yet been fully resolved, affecting the potential sales volume and revenue growth from this important market.
  
• Higher operational costs and lower margins associated with new products like Algae are a concern, as continued restructuring and technical issues may limit the ability to optimize profitability and net margins financially.

Valuation

• The analysts have a consensus price target of NOK61.85 for Aker BioMarine 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 NOK74.97, and the most bearish reporting a price target of just NOK48.73.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $271.5 million, earnings will come to $27.0 million, and it would be trading on a PE ratio of 22.2x, assuming you use a discount rate of 5.9%.
  
• Given the current share price of NOK58.0, the analyst price target of NOK61.85 is 6.2% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.