New Heights Program Will Expand Global Reach

Key Takeaways

• The New Heights program is driving profitable growth, enhancing revenue and margins through efficient structures and market expansion efforts.
  
• Strong financial positioning allows for strategic acquisitions, supporting increased revenues and earnings through market presence expansion.
  
• Economic and geopolitical tensions may hinder Alimak's revenue growth and profitability, with potential challenges from market dynamics, operational costs, and regional slowdowns.

Catalysts

Alimak Group AB (publ) desigs and manufactures vertical access solutions in Europe, Asia, Australia, South and North America, and internationally.

• The New Heights transformation program is expected to continue driving profitable growth, with the company planning to focus on even stronger growth up until 2030. This could improve both revenue and net margins as the company implements more efficient structures and expands its market reach.
  
• Alimak Group's strong financial position with reduced net debt and improved leverage (down to 1.58x) enhances its ability to pursue acquisitions. This strategy could lead to increased revenues and earnings as the company expands its market presence.
  
• Continuous growth in the service business, with a 9% increase in order intake, creates resilience and opportunities. This focus on the aftermarket is likely to improve revenue stability and potentially increase net margins due to higher-margin service contracts.
  
• The company is working on operational efficiencies, such as manufacturing cost improvements and supply chain management, to handle tariffs and increase competitiveness. This supports the likelihood of higher net margins through improved cost control and passed-down cost savings.
  
• Alimak is active in a range of emerging markets, including infrastructure access solutions and digital initiatives, that could drive new revenue streams. This strategic drive towards infrastructure and service expansion might lead to enhanced revenue growth and diversified earnings.

Alimak Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Alimak Group's revenue will grow by 3.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.5% today to 12.3% in 3 years time.
• Analysts expect earnings to reach SEK 953.8 million (and earnings per share of SEK 8.9) by about May 2028, up from SEK 676.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as SEK837 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.9x on those 2028 earnings, down from 19.1x today. This future PE is lower than the current PE for the GB Machinery industry at 21.5x.
• 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 6.25%, as per the Simply Wall St company report.

Alimak Group Future Earnings Per Share Growth

Risks

• Global economic uncertainties, influenced by factors such as U.S. tariffs and potential global GDP slowdowns, may lead to hesitations in investment decisions, impacting Alimak's revenue growth prospects.
  
• The company's reliance on strong order intake and profitability improvements could be at risk if market dynamics shift unfavorably due to economic and geopolitical tensions, potentially affecting net margins and earnings.
  
• Challenges in specific markets, such as the softness in the North American building maintenance unit market and ongoing issues with legacy projects, might pressure revenue and profit margins.
  
• While Alimak emphasizes its strategic initiatives and resilience, rising operational costs, such as those due to price adjustments and product development expenses, could impact future net earnings.
  
• The company's geographic revenue diversification may face headwinds if regional economic slowdowns, particularly in Europe, continue or worsen, potentially restraining revenue growth in those markets.

Valuation

• The analysts have a consensus price target of SEK143.0 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 SEK155.0, 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 SEK7.8 billion, earnings will come to SEK953.8 million, and it would be trading on a PE ratio of 18.9x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of SEK122.0, the analyst price target of SEK143.0 is 14.7% 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.