Lysoveta Trials And Houston Restructuring Will Expand Omega-3 Reach

Key Takeaways

• Expanding Omega-3 market share, new products, and major retail partnerships could significantly boost revenue and sales volumes.
  
• Centralizing resources and managing tariffs are expected to improve efficiency, reduce costs, and preserve net margins.
  
• Exposure to tariffs and trade tensions, operational restructuring risks, and challenges in market expansion could pressure profits and disrupt revenue growth.

Catalysts

A biotech innovator, develops and supplies krill-derived products for consumer health and wellness worldwide.

• The launch of new Lysoveta products, pending successful human clinical trials, could expand Aker BioMarine's product portfolio and generate new revenue streams through health claims focused on cognitive benefits. This can drive revenue growth.
  
• Restructuring the Human Health Ingredients segment by centralizing resources in Houston is expected to enhance production efficiency and reduce costs. This could lead to improved net margins over time.
  
• Expanding market share from 5% to a targeted 15-20% in the global Omega-3 market could drive substantial revenue growth, leveraging increased distribution and consumer awareness. This would likely positively impact revenue.
  
• Successful entry into large retailers like Whole Foods and BJ's indicates a heightened distribution strategy for Consumer Health Products in the U.S. market, which could boost sales volumes and subsequently improve earnings.
  
• Initiatives to manage tariffs and supply chain efficiencies, such as the duty drawback program and optimized China export routes, are expected to mitigate potential tariff impacts, preserving net margins and stabilizing earnings.

Aker BioMarine Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Aker BioMarine's revenue will grow by 13.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from -6.3% today to 15.6% in 3 years time.
• Analysts expect earnings to reach $47.4 million (and earnings per share of $0.33) by about August 2028, up from $-13.1 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 10.7x on those 2028 earnings, up from -52.3x today. This future PE is lower than the current PE for the NO Food industry at 22.8x.
• Analysts expect the number of shares outstanding to decline 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 6.16%, as per the Simply Wall St company report.

Aker BioMarine Future Earnings Per Share Growth

Risks

• Exposure to tariffs and international trade tensions, particularly between the U.S. and China, could affect costs and profit margins due to import/export duties impacting krill oil supply chains and affecting revenue streams.
  
• Continued restructuring, such as the relocation of resources from Norway to Houston, represents a potential operational risk that could disrupt production and incur additional costs that might impact net margins.
  
• The decline in the Emerging Business segment, which saw a 32% decrease due to changes in revenue recognition, might indicate potential vulnerabilities in revenue diversification and could affect overall earnings.
  
• High levels of interest-bearing debt ($157 million) increase financial risk and may put pressure on net profits if market conditions change unfavorably, impacting EBITDA and cash flow.
  
• Challenges in executing the market expansion strategy, as seen with the paused campaigns in South Korea due to political turmoil, could slow down market share gains and potential revenue growth.

Valuation

• The analysts have a consensus price target of NOK61.965 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 NOK75.11, and the most bearish reporting a price target of just NOK48.82.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $304.2 million, earnings will come to $47.4 million, and it would be trading on a PE ratio of 10.7x, assuming you use a discount rate of 6.2%.
• Given the current share price of NOK79.7, the analyst price target of NOK61.96 is 28.6% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.