Shift To Sustainable Packaging Will Align With Global Trends And Strengthen Market Position

Key Takeaways

• Strategic focus on sustainable packaging aligns with global trends, enhancing market share and potentially improving margins through eco-friendly pricing power.
  
• Expansion and diversification efforts, including new plants and product categories, aim to boost global growth and broaden revenue streams.
  
• Increased operating costs, capacity issues, and global economic challenges could strain Elopak's revenue growth and margins until strategic investments and operations stabilize.

Catalysts

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

• Elopak's expansion of capacity, notably with the new plant in Little Rock, is expected to support global growth and alleviate capacity constraints in the Americas, potentially driving increased revenues.
  
• The strategic shift towards more sustainable packaging solutions, such as cartons over plastics, aligns with global megatrends, supporting market share growth and possibly enhancing net margins due to pricing power on eco-friendly products.
  
• Investments in new product categories, like aseptic solutions and nonfood carton packaging, are anticipated to broaden the customer base and diversify revenue streams, impacting overall sales growth positively.
  
• Achieving operational efficiencies and maintaining EBITDA margins despite inflationary pressures and expanding production capacity reflects strong financial resilience, potentially leading to improved earnings.
  
• The ongoing expansion in emerging markets, like India, positions Elopak to capture significant growth opportunities in substantial markets, contributing to long-term revenue and earnings growth.

Elopak Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Elopak's revenue will grow by 6.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.2% today to 6.3% in 3 years time.
• Analysts expect earnings to reach €87.5 million (and earnings per share of €0.32) by about February 2028, up from €60.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.1x on those 2028 earnings, up from 15.3x today. This future PE is greater than the current PE for the NO Packaging industry at 13.8x.
• Analysts expect the number of shares outstanding to grow by 3.76% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.58%, as per the Simply Wall St company report.

Elopak Future Earnings Per Share Growth

Risks

• The dependency on leased filling machines rather than outright sales in Q4 could impact short-term revenue consistency as revenue recognition timing varies more with leasing. This impacts overall revenue growth stability.
  
• Increased operating costs, due to the buildup of the factory and production in Little Rock, suggest potential pressure on net margins and earnings until the investment yields higher returns.
  
• Capacity constraints in the Americas, despite strong demand, could limit revenue growth opportunities until the new factory in Little Rock is fully operational.
  
• Strained consumer spending and inflationary concerns globally could hinder overall revenue growth in the near term, impacting earnings.
  
• Potential tariffs on exports from Canada to the U.S. could impose additional costs on customers, which might reduce demand or squeeze Elopak's margins.

Valuation

• The analysts have a consensus price target of NOK48.179 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 €87.5 million, and it would be trading on a PE ratio of 17.1x, assuming you use a discount rate of 6.6%.
  
• Given the current share price of NOK40.2, the analyst price target of NOK48.18 is 16.6% 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.