Production Diversification And New Projects Will Succeed

Key Takeaways

• Altri's diversification into acetic acid and furfural projects predicts strong profitability, boosting future earnings and profit margins significantly.
  
• Strategic acquisitions and projects like Gama strengthen supply chain efficiency, enhance long-term revenue growth, and stabilize earnings.
  
• Volatile global pulp prices, operational risks, and potential trade tensions may pressure Altri's revenue streams, net margins, and financial stability.

Catalysts

Produces and sells cellulosic fibers in Portugal and internationally.

• Altri's diversification projects, including the acetic acid and furfural production units expected to launch in early 2026, anticipate an IRR above 15% and an EBITDA margin near 80%, potentially increasing future earnings and profitability.
  
• The full migration of Biotek's production into dissolving pulp by the end of 2026 is expected, with dissolving pulp prices being 41% higher on average over the last five years, which should positively impact revenue growth and margin expansion.
  
• The Gama project, with an expected CapEx of approximately €1 billion and an IRR above 10%, is progressing with environmental compliance, which could drive long-term revenue growth and capital return as it comes online.
  
• Pricing improvements in BHKP anticipated during the first quarter of 2025, with potential price increases up to $1,220 per tonne, could significantly enhance revenue and EBITDA margin in the near term.
  
• Strategic acquisitions, such as Greenalia Forest and Logistics, aim to solidify Altri's supply chain, potentially reducing costs and improving net margins and earnings stability.

Altri SGPS Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Altri SGPS's revenue will grow by 6.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.8% today to 16.7% in 3 years time.
• Analysts expect earnings to reach €167.0 million (and earnings per share of €0.81) by about May 2028, up from €107.2 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 10.9x on those 2028 earnings, down from 11.6x today. This future PE is greater than the current PE for the GB Forestry industry at 8.2x.
• 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 11.39%, as per the Simply Wall St company report.

Altri SGPS Future Earnings Per Share Growth

Risks

• Global pulp demand showed a slight decline in 2024, with particular volatility in China that could potentially impact Altri's revenue stability in future periods.
  
• The significant correction in hardwood pulp prices in Europe and China, especially the 20% average correction in Q4 of 2024, could signal ongoing price volatility, impacting future revenue streams.
  
• Operational incidents, such as the cogeneration turbine issue at Celbi, represent a risk of unforeseen costs, which could affect net margins if similar events recur.
  
• While the company expects stable cash costs for 2025, the forecast of higher capital expenditures may put pressure on net cash flows and net debt levels, influencing overall financial stability.
  
• Potential tariff wars or trade tensions could disrupt global pulp flows, particularly affecting sales to key markets like Asia, which may impact revenue and market expansion strategies.

Valuation

• The analysts have a consensus price target of €6.432 for Altri SGPS based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €7.1, and the most bearish reporting a price target of just €5.6.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €998.0 million, earnings will come to €167.0 million, and it would be trading on a PE ratio of 10.9x, assuming you use a discount rate of 11.4%.
• Given the current share price of €6.07, the analyst price target of €6.43 is 5.6% 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.