Energy Efficiency And Circular Materials Are Expected To Drive Strong Long Term Prospects

Catalysts

About BEWI

BEWI provides energy efficient insulation, HVAC components and protective packaging solutions with integrated circular raw material sourcing.

What are the underlying business or industry changes driving this perspective?

• Gradual recovery in European residential construction, combined with a housing shortage and stricter building codes for energy efficiency, is set to lift insulation volumes and support a mix shift toward higher value products. This is expected to drive revenue growth and EBITDA expansion in the Insulation segment.
• Rising demand for energy efficient heating and cooling solutions, reflected in renewed growth for heat pump components and HVAC, should translate into sustained double digit growth in this niche and higher group margins as these products scale on largely fixed production assets.
• Ongoing lightweighting and increased use of EPP components in both electric and premium cars, supported by recent investments in raw material production and German sites, is likely to boost automotive component volumes and maintain high margin contribution within Packaging, supporting earnings growth.
• Regulatory pressure and customer demand for recycled content in packaging and construction materials, combined with BEWI's integrated collection and recycling platform, position Circular to move from negative to positive EBITDA and improve group gross margin and earnings quality.
• Completed refinancing, reduced leverage through equity raise and RAW divestment, and tighter focus on core higher margin businesses give BEWI greater financial flexibility to execute operational improvements and selective industry consolidation, supporting future revenue growth and net earnings accretion.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming BEWI's revenue will grow by 6.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from -5.2% today to 1.0% in 3 years time.
• Analysts expect earnings to reach €9.4 million (and earnings per share of €0.04) by about December 2028, up from €-40.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €28.8 million in earnings, and the most bearish expecting €-454.9 thousand.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 67.1x on those 2028 earnings, up from -8.3x today. This future PE is greater than the current PE for the NO Chemicals industry at 23.0x.
• 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 9.38%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The construction cycle may remain subdued for longer than expected despite structural housing shortages, which would limit the recovery in insulation demand and keep segment revenue and EBITDA below the 15 percent margin target for an extended period.
• Persistently low prices for EPS raw materials and ongoing difficulty in finding a profitable model for the Circular segment could delay or prevent its turnaround. This would limit the contribution of recycled materials to group gross margin expansion and earnings growth.
• Cost inflation in salaries, transportation and non raw material inputs, combined with higher depreciation from recent capacity and automotive investments, may outpace pricing power and efficiency gains. This could compress operating margins and slow net earnings improvement.
• Automotive and heat pump components, while growing strongly, are exposed to cyclical European car production and HVAC spending. Any downturn or shift in these end markets could reduce volumes and weaken Packaging segment margins and group EBITDA.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of NOK19.62 for BEWI 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 NOK21.98, and the most bearish reporting a price target of just NOK17.98.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be €951.3 million, earnings will come to €9.4 million, and it would be trading on a PE ratio of 67.1x, assuming you use a discount rate of 9.4%.
  
• Given the current share price of NOK16.96, the analyst price target of NOK19.62 is 13.6% 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.