Lesjöfors And Alcomex Integration Will Expand Global Operations

Key Takeaways

• Strategic focus on operating margins in core divisions may enhance profitability through cost synergies and operational efficiencies.
  
• Acquisition-driven growth and international expansion, particularly in Asia and the U.S., could boost revenue and earnings.
  
• Reliance on acquisitions and cost reductions amid market challenges may pressure financial metrics and earnings due to integration risks and demand uncertainties.

Catalysts

Engages in component manufacturing and industrial trading businesses in Sweden, rest of Nordic Region, rest of Europe, North America, Asia, and internationally.

• Beijer Alma's strategic focus on increasing operating margins, especially within Lesjöfors and Beijer Tech, suggests potential improvements in profitability. Measures for cost synergies and operational efficiencies could lead to higher net margins over time.
  
• Continued acquisition strategy, with recent purchases in India and Finland, aims to drive revenue growth through expanded market access and diversification, positively impacting future earnings.
  
• The ongoing growth in the Industry segment, particularly in Asia, Nordics, and the U.S., indicates potential for sustained revenue increases as these regions continue to contribute effectively.
  
• Improvements in the operational performance of recently acquired firms like Alcomex, once fully integrated and optimized, are expected to positively influence earnings through enhanced cost management and increased margins.
  
• The company's sound financial position, with a net debt to adjusted EBITDA ratio of 2x, supports further acquisitions, which can accelerate growth in both revenue and profit margins amidst its international market expansion.

Beijer Alma Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Beijer Alma's revenue will grow by 5.3% annually over the next 3 years.
• Analysts are assuming Beijer Alma's profit margins will remain the same at 9.8% over the next 3 years.
• Analysts expect earnings to reach SEK 842.9 million (and earnings per share of SEK 14.15) by about May 2028, up from SEK 724.0 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as SEK941.4 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.7x on those 2028 earnings, up from 16.7x 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 6.24%, as per the Simply Wall St company report.

Beijer Alma Future Earnings Per Share Growth

Risks

• The construction market in Europe, particularly affecting door springs, is currently at a low level, which could negatively impact Alcomex's revenues and margins within Beijer Alma.
  
• There is uncertainty in demand trends for Chassis Springs, which depend on variables like seasonal weather conditions, potentially affecting future revenues and margins.
  
• The mention of structured cost reductions and potential one-off adjustments at Alcomex indicates financial strain, which could impact short-term earnings.
  
• The company’s net debt has slightly increased, partly due to acquisitions, which may pressure financial metrics like net margins if the acquired businesses do not perform as expected.
  
• The reliance on acquisitions as a key growth strategy could lead to integration challenges and execution risks, potentially impacting earnings and operating margins if these acquisitions underperform or encounter operational issues.

Valuation

• The analysts have a consensus price target of SEK207.5 for Beijer Alma 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 SEK8.6 billion, earnings will come to SEK842.9 million, and it would be trading on a PE ratio of 17.7x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of SEK201.0, the analyst price target of SEK207.5 is 3.1% 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.