Transformation Of Facade Access Division Will Drive Operational Efficiency By 2025

Key Takeaways

• Strategic transformation of the Facade Access division and market trend leverage aim to drive substantial revenue and margin improvements.
  
• Focus on service business diversification and effective capital management supports growth, enhancing resilience and investment opportunities.
  
• Challenges in the construction market, lower order backlog, high dependency on OEMs, and operational expenses threaten revenue growth, margins, and profitability.

Catalysts

Provides vertical access solutions in Europe, Asia, Australia, South and North America, and internationally.

• Alimak Group is strategically focusing on the transformation of its Facade Access division, emphasizing improved project execution, pricing strategies, and service business expansion. This is likely to drive higher revenue growth and EBITDA margins as older contracts phase out, with expectations for substantial margin improvements by 2025 and 2026.
  
• The company is targeting a revenue growth rate of 6% to 10% and an EBITDA margin above 18%, driven by the New Heights strategic road map and transformation initiatives. This forward-looking plan is centered on operational efficiency and leveraging market trends that support long-term revenue growth and margin stability.
  
• Alimak Group is poised to benefit from improving market conditions, particularly in the construction sector, as interest rates are expected to decrease by mid-2025. This could lead to an uptick in sales growth post-2024, boosting revenue and potentially improving net margins.
  
• The company is focusing on increasing resilience and diversifying its service business. A strong installed base and emphasis on full customer life cycle management present opportunities for stable, recurring revenue, enhancing earnings and net margin performance.
  
• The reduced leverage and focus on optimizing working capital and cost control hints at future opportunities for both organic and inorganic growth. This financial strategy is likely to support earnings growth and enhance return on capital employed (ROCE), as Alimak continues to explore acquisition opportunities and invest in sales and R&D.

Alimak Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Alimak Group's revenue will grow by 2.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.7% today to 12.2% in 3 years time.
• Analysts expect earnings to reach SEK 923.7 million (and earnings per share of SEK 8.74) by about February 2028, up from SEK 549.0 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 18.6x on those 2028 earnings, down from 22.6x today. This future PE is lower than the current PE for the GB Machinery industry at 27.1x.
• Analysts expect the number of shares outstanding to grow by 0.32% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.07%, as per the Simply Wall St company report.

Alimak Group Future Earnings Per Share Growth

Risks

• The construction market remains challenging, particularly in Europe, and is expected to continue facing difficulties in the next few quarters. This could lead to decreased sales and lower margins, mainly due to lower order intake and revenue for the Construction division. This impacts revenue and EBITDA margin.
  
• The order backlog for the group is reportedly between 5% and 10% lower compared to the previous year, which could pose challenges in achieving sales growth in 2025. Lower backlog impacts future revenue visibility and growth potential.
  
• High market dependency exists within the Wind division on larger OEMs and government regulations. These external dependencies may lead to variability in order intake and profitability, impacting revenue stability and margin consistency.
  
• Significant operational expenses related to sales, marketing, and product development are higher than expected, impacting operating expenses as a percentage of revenue, which in turn affects net margins and profitability.
  
• Alimak Group has struggled with financial targets in the past due to fundamental issues with acquisitions, indicating risks associated with executing M&A strategies and the impact on net profit and leverage.

Valuation

• The analysts have a consensus price target of SEK136.0 for Alimak Group 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 SEK154.0, and the most bearish reporting a price target of just SEK125.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK7.6 billion, earnings will come to SEK923.7 million, and it would be trading on a PE ratio of 18.6x, assuming you use a discount rate of 6.1%.
  
• Given the current share price of SEK117.4, the analyst price target of SEK136.0 is 13.7% 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.