Acquisitions And US A2L Launch Will Expand Global Reach

Key Takeaways

• Strategic acquisitions and expansion activities are driving Beijer Ref's revenue growth and market share across multiple regions.
  
• Introduction of new products and private labels could enhance sales volumes, improve margins, and strengthen brand presence in key markets.
  
• Over-reliance on acquisitions and external factors like regional uncertainties and regulatory changes pose risks to growth, margins, and revenue stability.

Catalysts

Provides commercial and industrial refrigeration, heating, and air conditioning products worldwide.

• Beijer Ref's continued growth through strategic acquisitions, such as the Cool4U and GIA Group in EMEA, and expanding its U.S. platform with Young Supply, suggests an increasing revenue stream and market share expansion.
  
• The positive market positioning and growth in APAC, especially in Australia, with new refrigerant quotas, reflects an upward trajectory in revenue and potentially higher profit margins due to increased market share.
  
• The introduction and anticipated ramp-up of A2L refrigerants in the U.S. offers a potential for increased sales volumes and improved gross margins as these products are more expensive.
  
• Beijer Ref's private label launch in the U.S. and ongoing branch expansions could lead to higher revenue growth and brand penetration, enhancing the net profit margins through diversified offerings.
  
• The expected seasonal upswing and geographical adaptations within EMEA indicate potential revenue boosts and stable margins during peak seasons, providing a solid groundwork for future earnings growth.
  

Beijer Ref Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Beijer Ref's revenue will grow by 5.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.3% today to 7.5% in 3 years time.
• Analysts expect earnings to reach SEK 3.3 billion (and earnings per share of SEK 6.22) by about May 2028, up from SEK 2.3 billion 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 33.1x on those 2028 earnings, up from 32.4x today. This future PE is greater than the current PE for the GB Trade Distributors industry at 31.1x.
• 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 6.08%, as per the Simply Wall St company report.

Beijer Ref Future Earnings Per Share Growth

Risks

• There is mention of uncertainty in Southern Europe, particularly in France, which could impact overall revenue growth in EMEA if these regions do not recover as expected.
  
• The U.S. business is primarily focused on the aftermarket service replacement, and any slowdown in consumer spending or economic downturn could impact this revenue stream.
  
• The transition to A2L refrigerants in the U.S. might introduce complexities and could impact the gross margins if not managed efficiently, particularly given the higher costs associated with these new solutions.
  
• The business continues to rely on acquisitions for growth; any missteps in integrating these acquisitions could affect net margins and earnings if cost synergies are not realized as expected.
  
• In APAC, adverse weather events like the cyclone in Australia highlighted risks that could disrupt sales temporarily, potentially impacting quarterly revenues even if these losses are offset in subsequent quarters.

Valuation

• The analysts have a consensus price target of SEK179.5 for Beijer Ref 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 SEK205.0, and the most bearish reporting a price target of just SEK152.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK43.6 billion, earnings will come to SEK3.3 billion, and it would be trading on a PE ratio of 33.1x, assuming you use a discount rate of 6.1%.
  
• Given the current share price of SEK147.2, the analyst price target of SEK179.5 is 18.0% 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.