Global Infrastructure Investment Will Drive Water And Dairy Expansion

Key Takeaways

• Robust demand for specialized rubber and agricultural solutions, alongside international expansion, supports steady revenue growth and diversified earnings.
  
• Ongoing investments in R&D, efficiency, and manufacturing are boosting margins and accelerating entry into higher-value, niche global markets.
  
• Heavy reliance on core sectors and international markets, rising costs, and stricter regulations threaten Skellerup's margins, cash flow, and long-term earnings stability.

Catalysts

Designs, manufactures, and distributes engineered products for various specialist industrial and agricultural applications.

• Skellerup is well-positioned to benefit from sustained global investment in water and wastewater infrastructure-driven by population growth and demand for clean water-with its specialized rubber components seeing robust, non-cyclical demand in these segments; this is likely to underpin steady revenue and EBIT growth over the medium-to-long term.
  
• Expanding consumption of dairy and food products, particularly from growth in emerging markets and a rising global middle class, creates increased demand for Skellerup's dairy consumables and agricultural solutions-supporting long-term top-line expansion and geographic diversification of revenue streams.
  
• Investments in R&D, capacity, and manufacturing modernization-including recent machinery upgrades and new product launches-are expected to accelerate penetration into higher-margin, niche applications and international markets, leading to improved net margins and scalable earnings growth.
  
• Operational efficiency improvements (automation, productivity gains, and ongoing process investments) are driving margin resilience, even as input costs and tariffs create headwinds, positioning the company for enhanced net margin and operating leverage as demand grows.
  
• Strategic growth in international markets (notably the US, Europe, and Asia) via expanded distribution and targeted product launches-such as the Thriver calf feeding range and expanded presence in specialty footwear and industrial foam-should diversify earnings and reduce exposure to regional downturns, underpinning more resilient long-term earnings trajectories.

Skellerup Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Skellerup Holdings's revenue will grow by 7.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 15.4% today to 16.0% in 3 years time.
• Analysts expect earnings to reach NZ$69.9 million (and earnings per share of NZ$0.36) by about August 2028, up from NZ$54.5 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 19.9x on those 2028 earnings, up from 17.6x today. This future PE is lower than the current PE for the NZ Machinery industry at 20.3x.
• 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 8.06%, as per the Simply Wall St company report.

Skellerup Holdings Future Earnings Per Share Growth

Risks

• Ongoing and escalating global trade tensions, particularly US-imposed tariffs on goods sourced from China and Vietnam, are resulting in recurring and potentially rising structural costs for Skellerup; if not offset through operational or supply chain shifts, these could negatively impact net margins and earnings over time.
  
• The company's exposure to elevated raw material costs-especially for rubber and plastics used in manufacturing-is evident, and prolonged inflation in these inputs poses a risk to gross margins if price increases cannot be sustainably passed on to customers, particularly amid competitive or price-sensitive end-markets.
  
• With more than 70% of dairy revenue generated from international markets and continued heavy concentration in the dairy and potable/wastewater infrastructure sectors, Skellerup faces meaningful customer and sector concentration risk; a cyclical or structural downturn or disruptive innovation in these core end-markets could threaten long-term revenue stability and growth.
  
• The transition towards in-market manufacturing, while offering future strategic flexibility, may require significant capital investment, could introduce operational complexity, and faces uncertain demand-potentially pressuring free cash flow, increasing depreciation costs, and diluting near-term earnings if not carefully executed.
  
• Continued intensification of environmental regulations related to rubber, plastics, and emissions tracking (including mandatory assurance of Scope 3 emissions data) could materially increase compliance and reporting costs, require additional capex for plant upgrades, and ultimately reduce net margin if regulatory burdens escalate faster than productivity improvements.

Valuation

• The analysts have a consensus price target of NZ$5.625 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$437.8 million, earnings will come to NZ$69.9 million, and it would be trading on a PE ratio of 19.9x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of NZ$4.91, the analyst price target of NZ$5.62 is 12.7% 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.