Acquisitions And Expansion Into Asia Signal Positive Future Outlook

Key Takeaways

• Acquisition strategy and organic growth in Asia and medical tech may boost future revenue and profitability.
  
• Efficiency improvements and strong performance in key segments could enhance earnings and operating margins.
  
• Dependence on Central Europe and acquisitions pose risks to revenue and profitability, with potential impacts from leadership transition and financial strain due to rising debt.

Catalysts

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

• The company is leveraging acquisitions to drive growth, as seen with Beijer Tech's acquisition of AVS, Brissmans Brandredskap, and Clemco, which are expected to contribute to future revenue and profitability.
  
• Organic growth opportunities are being developed, particularly in Lesjöfors' operations in Asia and within their medical technology segment, which could positively affect both revenue and net margins.
  
• Beijer Alma plans to continue its acquisition strategy to enhance its Niche Technologies segment, potentially leading to higher revenues and margins through access to noncyclical and profitable markets.
  
• The restoration of profitability in the Alcomex operation, combined with expected growth from recently started U.S. operations, is targeted, which could positively affect earnings as efficiency improvements are implemented.
  
• Continued strong performance and higher operating margins in Lesjöfors, despite a tough market for Chassis Springs in Q4, suggest the potential for margin improvements and better earnings moving forward.

Beijer Alma Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Beijer Alma's revenue will grow by 5.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.9% today to 10.6% in 3 years time.
• Analysts expect earnings to reach SEK 891.6 million (and earnings per share of SEK 15.65) by about March 2028, up from SEK 714.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.4x on those 2028 earnings, down from 17.1x today. This future PE is lower than the current PE for the GB Machinery industry at 25.3x.
• 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 6.28%, as per the Simply Wall St company report.

Beijer Alma Future Earnings Per Share Growth

Risks

• The company's reliance on the challenging Central European market, particularly Germany, poses a risk to its revenue growth, especially as demand remains weak in this area.
  
• The continued struggles of Alcomex, a major subsidiary, with the weak construction industry and low demand in Central Europe could negatively impact the company's net margins.
  
• The transition to a new CEO might bring uncertainties and potential disruptions in strategic execution, which could affect operational efficiencies and earnings.
  
• High dependency on acquisitions for growth, as seen in Beijer Tech, may lead to integration challenges and risk associated with over-reliance on inorganic growth strategies, impacting long-term profitability.
  
• Increased net debt due to acquisitions could strain financial health, especially if interest rates rise or if future acquisition performance does not meet expectations, thereby affecting net earnings.

Valuation

• The analysts have a consensus price target of SEK203.333 for Beijer Alma 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 SEK227.0, and the most bearish reporting a price target of just SEK175.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK8.4 billion, earnings will come to SEK891.6 million, and it would be trading on a PE ratio of 16.4x, assuming you use a discount rate of 6.3%.
  
• Given the current share price of SEK203.0, the analyst price target of SEK203.33 is 0.2% 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.