Acquisitions And Diversification Will Drive Revenue Stability In High-Tech Products

Key Takeaways

• Strategic acquisitions and a diversified portfolio are expected to enhance revenue stability and growth despite market challenges.
  
• Strong performance in the Energy segment and focus on product mix and pricing power likely to improve profit margins and earnings.
  
• Market uncertainty, currency effects, and high inventory levels in key sectors could hinder revenue growth and negatively impact net margins and earnings.

Catalysts

Provides high-tech products and solutions in Sweden, Denmark, Finland, Norway, rest of Europe, and internationally.

• Addtech AB's ongoing high pace of acquisitions, including 9 this year and recent significant additions in different sectors, is expected to enhance future revenue by diversifying their product offerings and expanding their market reach.
  
• The well-diversified portfolio, which mitigates risks when certain markets are down by benefiting from other segments experiencing growth, has positioned Addtech in a way that should sustain future revenue stability and growth despite current market challenges.
  
• The strong performance and growth momentum within the Energy segment, characterized by improved product mix, high pricing power, and contributions from recent acquisitions, is expected to positively impact future revenue and potentially increase profit margins.
  
• Addtech's focus on strategically improving product mix, capturing good pricing power, and leveraging economies of scale from acquired companies indicates potential improvements in net margins and long-term EPS growth.
  
• By maintaining robust cash flow and a strong financial position, Addtech can continue to support its growth ambitions, particularly through additional strategic acquisitions or investments in high-growth areas, enhancing future revenue and earnings potential.

Addtech AB (publ.) Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Addtech AB (publ.)'s revenue will grow by 5.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.4% today to 10.5% in 3 years time.
• Analysts expect earnings to reach SEK 2.5 billion (and earnings per share of SEK 8.67) by about December 2027, up from SEK 1.7 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as SEK 2.3 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 45.4x on those 2027 earnings, down from 48.6x today. This future PE is greater than the current PE for the GB Trade Distributors industry at 18.0x.
• Analysts expect the number of shares outstanding to grow by 2.28% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.58%, as per the Simply Wall St company report.

Addtech AB (publ.) Future Earnings Per Share Growth

Risks

• Market uncertainty with hesitated larger project decisions and delayed uptick in demand could lead to unpredictable revenue streams in some segments such as OEM components and Special Vehicles.
  
• Negative currency effects and lower sales in specific areas like Automation and Industrial Solutions could impact net margins and earnings.
  
• High inventory levels among certain customers, especially in sectors like medical and mechanical, might result in reduced short-term revenues and cash flow challenges.
  
• The broad-based hesitation in investment and project initiation, despite high quotation levels, especially in sectors like sawmill and Process Technology, could delay revenue growth expectations.
  
• Although acquisitions are contributing positively, any regulatory delays (e.g., competition authority approvals) or integration challenges could pose risks to achieving projected increases in sales and profitability.

Valuation

• The analysts have a consensus price target of SEK 335.0 for Addtech AB (publ.) 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 SEK 365.0, and the most bearish reporting a price target of just SEK 290.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be SEK 23.9 billion, earnings will come to SEK 2.5 billion, and it would be trading on a PE ratio of 45.4x, assuming you use a discount rate of 5.6%.
• Given the current share price of SEK 312.6, the analyst's price target of SEK 335.0 is 6.7% 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.