Innomar Acquisition And GNSS Unit Will Expand Market Opportunities

Key Takeaways

• Strategic acquisitions and innovation in product development are expected to drive revenue growth and improve net margins through high-margin offerings.
  
• Expansion in defense and security sectors, alongside enhanced operating efficiencies, will likely bolster long-term revenue growth and improve profit margins.
  
• Supply chain challenges, acquisition risks, regulatory uncertainty, high R&D expenses, and seasonal business dependence pose revenue and margin risks for Norbit.

Catalysts

Provides technology solutions to customers in a range of industries.

• Norbit's strategic acquisition of Innomar, coupled with organic product development, is expected to drive significant revenue growth through expanded product offerings and tailored solutions in the Oceans segment. This will likely bolster future revenue growth and potentially improve net margins due to new, high-margin product lines.
  
• The development and anticipated deployment of the GNSS On-Board Unit for Toll4Europe, including the establishment of a new production line, is expected to create new revenue streams and enhance operating efficiencies. This should positively impact both top-line revenue and net earnings through increased sales volumes and economies of scale.
  
• Continued investment in R&D and new product introductions, such as the modular WBMS X sonar platform, provide opportunities for additional business models and revenue streams. This focus on innovation is expected to drive future revenue growth and support margin expansion by increasing the share of higher-margin products.
  
• The integration of acquired companies like Ping DSP into Norbit’s existing sales and distribution network can accelerate growth and create synergies that enhance revenue generation and potentially improve profit margins by leveraging existing infrastructure and customer bases.
  
• Expansion in defense and security sectors, driven by increased demand for contract manufacturing and Norbit's strategic focus on Made in Europe products, supports long-term revenue growth projections. This can lead to higher net margins through increased manufacturing efficiency and strategic positioning in a high-demand sector.

Norbit Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Norbit's revenue will grow by 20.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 13.9% today to 18.6% in 3 years time.
• Analysts expect earnings to reach NOK 572.0 million (and earnings per share of NOK 8.96) by about April 2028, up from NOK 243.3 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 23.4x on those 2028 earnings, down from 34.5x today. This future PE is lower than the current PE for the NO Electronic industry at 32.3x.
• Analysts expect the number of shares outstanding to grow by 6.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.15%, as per the Simply Wall St company report.

Norbit Future Earnings Per Share Growth

Risks

• Supply chain issues led to a postponement of NOK 20 million in revenues for Connectivity, which could continue to affect future revenues and gross margins if not resolved.
  
• The integration of Ping DSP and other acquisitions present a risk as the company may face challenges in realizing the anticipated synergies, potentially impacting net margins and earnings.
  
• Regulatory uncertainty in the EU concerning tachographs' enforcement modules could affect demand, posing a risk to future revenue streams in the Connectivity segment.
  
• High R&D and investment expenses, particularly on projects like the GNSS On-Board Unit, might not yield the expected returns, impacting overall net margins and earnings.
  
• The high dependence on seasonal business in the Oceans segment could lead to fluctuations in revenue and profitability, contributing to variability in quarterly earnings.

Valuation

• The analysts have a consensus price target of NOK145.0 for Norbit 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 NOK3.1 billion, earnings will come to NOK572.0 million, and it would be trading on a PE ratio of 23.4x, assuming you use a discount rate of 7.1%.
  
• Given the current share price of NOK132.0, the analyst price target of NOK145.0 is 9.0% 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.