Key Takeaways

Anticipated growth in Australia due to new specifications and strong demand in the U.K. suggest future revenue growth across various segments.
Expansion efforts in Europe and new product launches in international markets could boost future revenue and enhance operational efficiency.
Increased inventory levels could raise costs and hurt cash flow and margins if not handled, amid U.S. tariff impacts and demand volatility risks.

Catalysts

About Skellerup Holdings

Designs, manufactures, and distributes engineered products for various specialist industrial and agricultural applications.What are the underlying business or industry changes driving this perspective?

Anticipated growth in the potable and wastewater applications in Australia, aided by new specifications for polypropylene pipes and smart metering products, suggests future revenue growth and improved sales in these segments.
There is expected strong demand for solar roof flashing products in the U.K. and consistent interest for hygiene products, which would contribute towards maintaining or increasing the company's revenue.
The launch of new calf feeding and high-performance milk liner products in international markets, with promising early uptake, can potentially boost future revenue and gross margins within the Agri division.
Increased capability and productivity investments, alongside improvements in equipment and process within manufacturing operations, are likely to enhance gross margins and operational efficiency, potentially leading to better net margins.
Potential expansion in European markets, facilitated by the recently leased facility in the Netherlands for high-performance foam products, could drive revenue growth in these regions by tapping into new markets.

Skellerup Holdings Earnings and Revenue Growth

Skellerup Holdings Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Skellerup Holdings's revenue will grow by 6.7% annually over the next 3 years.
Analysts assume that profit margins will increase from 14.6% today to 16.5% in 3 years time.
Analysts expect earnings to reach NZ$68.0 million (and earnings per share of NZ$0.35) by about May 2028, up from NZ$49.5 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 19.4x on those 2028 earnings, up from 16.7x today. This future PE is greater than the current PE for the NZ Machinery industry at 18.0x.
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 7.61%, as per the Simply Wall St company report.

Skellerup Holdings Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Increased inventory levels to manage potential tariff increases and port interruptions could lead to higher carrying costs and impact cash flow and net margins if not managed effectively.
Weaker demand and deferred spending in the U.S. infrastructure market, which is attributed partly to the election cycle, present a risk to future revenue and EBIT in the Industrial division.
The reliance on the U.S. market means that potential tariff changes and geopolitical issues could significantly affect earnings and operating cash flow.
The volatility in demand for certain products, such as marine foam and rubber footwear, highlights potential risks in accurately forecasting and maintaining stable revenue across all divisions.
Increases in freight costs and operational expenditures to support future growth, such as additional facilities and personnel, could pressure net margins if revenue growth doesn't match these investments.

Valuation

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

The analysts have a consensus price target of NZ$5.4 for Skellerup Holdings 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 NZ$411.1 million, earnings will come to NZ$68.0 million, and it would be trading on a PE ratio of 19.4x, assuming you use a discount rate of 7.6%.
Given the current share price of NZ$4.22, the analyst price target of NZ$5.4 is 21.9% 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.