Leading In Sustainable Packaging, We Will Expand Capacity With Little Rock Plant And Global Partnerships

Key Takeaways

• Strategic expansion in sustainable packaging and new plants aims to capture market share and boost revenues by addressing capacity and demand.
  
• Global growth efforts, including mergers and innovations, target revenue increase and market penetration through sustainable solutions and diversified streams.
  
• Capacity constraints and increased costs from new infrastructure and raw materials may pressure Elopak's revenue growth and net margins despite recent improvements.

Catalysts

Manufactures and supplies paper-based packaging solutions for liquid food in Europe, the Middle East, Africa, Asia, the Americas, and internationally.

• Elopak is focusing on Repackaging tomorrow by leading in sustainable packaging solutions, which taps into the global megatrend of reducing plastic usage. This positions Elopak to capture market share and potentially grow revenues as demand for environmentally friendly packaging increases.
  
• The company's strategic expansion with the new plant in Little Rock is expected to ramp up production capacity, addressing current capacity constraints in the Americas. This expansion could significantly boost revenue and maintain or improve net margins by catering to high market demand.
  
• Elopak's push for global growth by leveraging international investments, particularly in India and the Americas, sets the stage for increased revenues and earnings through market expansion and increased market penetration.
  
• The innovation in the nonfood category, such as the development of D-Pak for detergent packaging, aligns with market trends towards sustainability. This could diversify revenue streams and enhance overall revenue from higher-margin segments.
  
• Mergers and customer alliances, like the collaboration with Union Cosmetics for carton packaging in Central Europe, could lead to increased market share and revenue growth by expanding into new regions and sectors, thus enhancing profitability.

Elopak Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Elopak's revenue will grow by 6.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.2% today to 7.0% in 3 years time.
• Analysts expect earnings to reach €98.3 million (and earnings per share of €0.39) by about April 2028, up from €60.3 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €119.0 million in earnings, and the most bearish expecting €84 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.7x on those 2028 earnings, down from 14.5x today. This future PE is lower than the current PE for the NO Packaging industry at 14.4x.
• 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 6.37%, as per the Simply Wall St company report.

Elopak Future Earnings Per Share Growth

Risks

• There is a decline in revenues from filling machines this quarter compared to the previous year, attributed to the timing and mix of leased versus outright sales, impacting overall revenue consistency.
  
• The capacity constraint issue in the Americas due to current dependency on outsourcing and the strain on existing infrastructure may affect revenue growth potential until the new factory is fully operational.
  
• There are increased operating costs linked to the new plant in Little Rock and heightened R&D expenses to support their strategy, which could pressure net margins and earnings until offset by future revenue.
  
• Exposure to potential trade tensions or tariffs affecting exports from Canada and Mexico to the US might increase product costs for customers, influencing revenue and market competitiveness.
  
• The fluctuations in raw material costs, such as aluminum and packaging board, which continue to rise, could impact net margins despite the current year improvement from softer polyethylene and aluminum prices.

Valuation

• The analysts have a consensus price target of NOK46.626 for Elopak based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €1.4 billion, earnings will come to €98.3 million, and it would be trading on a PE ratio of 12.7x, assuming you use a discount rate of 6.4%.
• Given the current share price of NOK39.25, the analyst price target of NOK46.63 is 15.8% 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.