Expanding EV Charging Segment With Chargestorm Connected 3 Will Strengthen Future Market Position

Key Takeaways

• Expansion into EV charging and focus on optimizing production could boost revenue growth and improve net margins.
  
• Strengthening sales in Europe and expanding e-commerce capabilities aims to increase market presence and profitability.
  
• Terminated partnership with General Motors and operational changes pose risks to revenue growth and net margins, alongside client solvency and cost efficiency challenges.

Catalysts

Provides battery charging products for vehicles in Sweden, Nordics, DACH, the Americas, rest of Europe, and internationally.

• CTEK is focusing on expanding its EVSE business by introducing the new Chargestorm Connected 3 charger and expanding into markets like the U.K. and Germany, which could boost revenue growth and market share in the EV charging segment.
  
• The company has optimized its production by moving 80% of its production to Malaysia from China, potentially reducing costs and improving net margins due to lower tariffs in the North American markets.
  
• Continuous investment in strengthening the sales organization, particularly in the DACH region and Eastern Europe, aims to drive revenue growth by increasing CTEK's market presence and share in these key regions.
  
• The focus on expanding e-commerce capabilities, evidenced by the creation of a dedicated e-commerce role, is expected to enhance sales channels and contribute to revenue growth in the digital marketplace.
  
• The strategy to grow the 12-volt charger market and workshop chargers may enhance operating efficiencies and enlarge market share, potentially improving earnings and contributing to overall profitability.

CTEK Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CTEK's revenue will grow by 10.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from -4.6% today to 10.5% in 3 years time.
• Analysts expect earnings to reach SEK 130.8 million (and earnings per share of SEK 2.25) by about April 2028, up from SEK -42.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting SEK157.1 million in earnings, and the most bearish expecting SEK104.4 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.7x on those 2028 earnings, up from -21.8x today. This future PE is lower than the current PE for the SE Electrical industry at 18.0x.
• 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 7.24%, as per the Simply Wall St company report.

CTEK Future Earnings Per Share Growth

Risks

• The termination of the collaboration with General Motors due to unprofitable volumes indicates challenges in scaling partnerships, which could negatively impact revenue growth.
  
• Performance costs and uneven distribution of expenses have led to fluctuating quarterly profits, suggesting potential volatility in earnings and net margins.
  
• A significant provision for credit loss linked to the insolvency of a major customer, Eways, highlights risks in client solvency that can affect net margins and overall profitability.
  
• Changes in production locations to mitigate tariffs, such as shifting from China to Malaysia, introduce operational risks and complexities, potentially impacting cost efficiency and net margins.
  
• Expanding the sales organization and investing in digital channels involves costs that may not immediately translate into proportional revenue increases, potentially affecting net margins in the short term.

Valuation

• The analysts have a consensus price target of SEK22.667 for CTEK 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 SEK27.0, and the most bearish reporting a price target of just SEK17.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK1.2 billion, earnings will come to SEK130.8 million, and it would be trading on a PE ratio of 14.7x, assuming you use a discount rate of 7.2%.
• Given the current share price of SEK13.08, the analyst price target of SEK22.67 is 42.3% 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.