Nordic, German And Americas Markets Will Drive Industrial Progress

Key Takeaways

• Strong order intake driven by Nordic market resurgence and seasonal demand is expected to boost revenue, particularly in Q2.
  
• Patent litigation resolution and streamlined operations from minority share buyouts are likely to positively impact profitability and earnings.
  
• Currency fluctuations, competition, supply chain issues, and uncertain market conditions threaten profitability and revenue stability across international markets.

Catalysts

Engages in the design, production, and sale of excavator tools in Sweden, Denmark, Norway, Finland, rest of Europe, North and South America, Japan, South Korea, Australia, New Zealand, and internationally.

• Strong growth in order intake driven by the resurgence in the Nordic market and seasonal demand is expected to boost revenue, especially in Q2, aligning with traditional digging season patterns.
  
• Increased market penetration of tiltrotators in Europe, particularly Germany, is anticipated to drive revenue growth as tiltrotators become the standard.
  
• Expansion efforts in the Americas, although challenged by low inventory and tariffs, could benefit from adjusted inventory levels and focused customer engagement to enhance future earnings.
  
• The resolution of the Rototilt patent litigation, eliminating legal uncertainties, is likely to positively impact net margins by reducing legal expenses.
  
• Strategic buyout of minority shares in subsidiaries will help streamline operations and potentially improve profitability, contributing positively to earnings.

engcon Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming engcon's revenue will grow by 24.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 13.1% today to 18.1% in 3 years time.
• Analysts expect earnings to reach SEK 581.8 million (and earnings per share of SEK 3.83) by about May 2028, up from SEK 216.0 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 32.3x on those 2028 earnings, down from 65.6x today. This future PE is greater than the current PE for the SE 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 5.61%, as per the Simply Wall St company report.

engcon Future Earnings Per Share Growth

Risks

• The strengthening of the Swedish krona may negatively impact net sales when revenues from international markets are converted back into SEK, potentially affecting overall earnings.
  
• Increasing competition in key markets like the Netherlands might lead to margin pressures as competitive pricing becomes necessary to maintain market share, impacting net margins.
  
• The company faces supply chain disruptions that could lead to delivery delays and missed sales opportunities, possibly affecting revenue and future growth.
  
• Tariff situations and currency fluctuations, especially in the Americas, might lead to increased costs that could dent profitability if not fully passed on to customers, impacting net margins.
  
• Uncertain market conditions, particularly in the Asia/Oceania region due to elections and potential economic instability, could lead to fluctuations in order intake and sales, affecting revenue stability.

Valuation

• The analysts have a consensus price target of SEK105.667 for engcon 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 SEK3.2 billion, earnings will come to SEK581.8 million, and it would be trading on a PE ratio of 32.3x, assuming you use a discount rate of 5.6%.
  
• Given the current share price of SEK93.4, the analyst price target of SEK105.67 is 11.6% 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.