Volatile Geopolitics Will Undermine Future Revenue Potential

Key Takeaways

• Significant investments in port operations and long routes may improve net margins by optimizing logistics efficiencies but could overinflate revenue expectations.
  
• Volatile geopolitical conditions, particularly around Ukraine, may disrupt revenue streams and raise concerns about long-term sustainability of current earnings.
  
• Diversification and strategic infrastructure investments are driving TTS's strong revenue growth and profitability, enhancing its financial stability and future growth potential.

Catalysts

Provides freight forwarding services in Romania.

• TTS is projecting new flows of goods and multi-annual projects that are expected to drive future growth, potentially inflating revenue expectations as these initiatives develop over the next few years.
  
• The significant investments in port operations and the reactivation of long routes to markets like Germany and Austria could lead investors to anticipate improved net margins by optimizing logistics efficiencies.
  
• Temporary reduction in CapEx could create a perception of improved short-term earnings as future required expenditures are deferred, although this may not be sustainable long-term.
  
• The volatile geopolitical environment, particularly related to Ukraine, suggests an unstable revenue stream, with market distortions affecting commodities like grains and steel, potentially leading to the belief that current earnings might not be replicable.
  
• While diversifying service offerings, TTS faces potential operational oversupply and market fragmentation challenges, which could impact long-term pricing power and lead investors to overestimate the company's future revenue potential.

TTS (Transport Trade Services) Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming TTS (Transport Trade Services)'s revenue will decrease by -1.6% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 8.7% today to 8.5% in 3 years time.
• Analysts expect earnings to reach RON 71.7 million (and earnings per share of RON 1.58) by about January 2028, down from RON 77.1 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 3.9x on those 2028 earnings, down from 10.7x today. This future PE is about the same as the current PE for the RO Shipping industry at 3.9x.
• Analysts expect the number of shares outstanding to decline by 36.78% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.66%, as per the Simply Wall St company report.

TTS (Transport Trade Services) Future Earnings Per Share Growth

Risks

• TTS experienced significant revenue growth compared to 2021, with 9-month revenues in 2023 nearly equaling the solid financial year of 2021. This indicates a strong revenue perspective overall.
  
• Profitability at the TTS level has almost doubled compared to the period prior to the Ukraine war, with a very good profit rate of 14.1%, suggesting potential stability or improvement in net margins.
  
• The company has a solid balance sheet, with a substantial increase in net assets and low exposure to loans, suggesting a strong financial position that could cushion against potential risks.
  
• TTS has been diversifying its operations by covering more market segments and developing new projects, which can lead to increased revenue and mitigate risks from downturns in specific markets.
  
• Investments in infrastructure like ports and terminals, along with strategic projects, could enhance long-term earnings and position TTS for future growth amid new economic or geopolitical conditions.

Valuation

• The analysts have a consensus price target of RON4.37 for TTS (Transport Trade Services) 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 RON842.8 million, earnings will come to RON71.7 million, and it would be trading on a PE ratio of 3.9x, assuming you use a discount rate of 12.7%.
  
• Given the current share price of RON4.6, the analyst's price target of RON4.37 is 5.3% lower. 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.