Biotek's Dissolving Pulp Shift And Caima's Project Poised To Boost Future Prospects

Key Takeaways

• Altri's strategic transition to dissolving pulp aims to leverage market growth and stable pricing for potential revenue and margin enhancement.
  
• Strong ESG performance and reduced net debt enhance financial positioning, increasing investor appeal and supporting future growth prospects.
  
• Reduced demand and price pressure in global markets, along with regulatory delays and cost increases, could impact Altri's future revenues and margins.

Catalysts

Produces and sells cellulosic fibers in Portugal and internationally.

• Altri's strategic shift to convert Biotek's pulp production from Bleached Hardwood Kraft Pulp (BHKP) to Dissolving Pulp by the end of 2026 is expected to capitalize on higher growth and more stable pricing in the dissolving pulp market, potentially boosting future revenues and margins.
  
• The recovery and valorization project at Caima to produce acetic acid and furfural from renewable sources is anticipated to yield an EBITDA margin of 80% and an IRR above 15%, positively impacting future earnings and margins.
  
• Altri's focus on maintaining stable cash costs and gaining efficiencies, alongside the management of external risks such as turbine incidents, aims to stabilize or improve net margins going forward.
  
• The company's strong ESG performance and leadership position in the Paper and Pulp subindustry, recognized by Sustainalytics and EcoVadis, may enhance investor attraction and potentially lead to better valuation and investor demand, indirectly supporting future earnings.
  
• Reduction in net debt by 23% in Q3 2024 and a net debt-to-EBITDA ratio of 1.1x positions Altri well financially to pursue growth projects without overleveraging, supporting future revenue and earnings growth.

Altri SGPS Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Altri SGPS's revenue will grow by 2.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.4% today to 13.1% in 3 years time.
• Analysts expect earnings to reach €118.5 million (and earnings per share of €0.58) by about January 2028, up from €104.2 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €84 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.1x on those 2028 earnings, up from 11.3x today. This future PE is greater than the current PE for the GB Forestry industry at 7.9x.
• Analysts expect the number of shares outstanding to grow by 0.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.4%, as per the Simply Wall St company report.

Altri SGPS Future Earnings Per Share Growth

Risks

• The slowdown in the global Hardwood Pulp Market, mainly due to reduced demand in China, could impact Altri's future revenues and profits if similar trends continue.
  
• The correction in Hardwood Pulp prices in China, which has been followed by Europe and North America, suggests potential for continued price pressure that could affect Altri's net margins and earnings.
  
• Any increase in chemical costs, such as caustic soda, due to supply issues could impact Altri's operating expenses and net margins.
  
• The incident with the cogeneration turbine at Celbi, impacting Altri's electricity production, is expected to have a €6 million economic effect in Q4 2024, potentially affecting earnings for that period.
  
• Uncertainties in political and regulatory environments, particularly concerning the Gama project's environmental license, could delay strategic projects, impacting Altri's future revenue and earnings growth.

Valuation

• The analysts have a consensus price target of €6.31 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 €6.8, 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 €902.9 million, earnings will come to €118.5 million, and it would be trading on a PE ratio of 15.1x, assuming you use a discount rate of 11.4%.
• Given the current share price of €5.73, the analyst's price target of €6.31 is 9.2% 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.