Efficiency In Scandinavia And Eastern Europe Will Deliver Future Success

Key Takeaways

• Strategic focus on organic growth, productivity investments, and restructuring boosts margins and positions Inwido for long-term profitability and revenue expansion.
  
• Strong balance sheet and reduced debt offer potential for growth through strategic mergers and acquisitions, enhancing future earnings.
  
• Challenges in e-commerce, fierce price competition, and delayed project deliveries threaten Inwido's short-term profitability and long-term growth ambitions.

Catalysts

Through its subsidiaries, engages in development, manufacture, and sale of windows and doors.

• Inwido's strategic focus on driving organic growth, as demonstrated by a 10% organic increase in net sales and a 13% rise in order intake, positions the company well for future revenue expansion as economic conditions improve.
  
• Investments in productivity-enhancing measures are starting to bear fruit, with improvements in capacity utilization and gross margins in Scandinavia and Eastern Europe. These initiatives are likely to continue enhancing net margins over the coming quarters.
  
• The improved order backlog, which increased by 19%, provides visibility and assurance for future sales and earnings growth, supporting positive revenue trajectories in the near term.
  
• Strategic restructuring and efficiency measures in the e-commerce division are expected to enhance future cost efficiency and margins, bolstering long-term profitability and potentially leading to earnings growth.
  
• The company's strong balance sheet and reduced net debt to EBITDA ratio (from 1.4x to 1.1x) provide significant firepower for mergers and acquisitions, potentially driving top-line growth and enhancing earnings through strategic acquisitions aligned with Inwido's goals.

Inwido Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Inwido's revenue will grow by 4.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.1% today to 8.8% in 3 years time.
• Analysts expect earnings to reach SEK 907.3 million (and earnings per share of SEK 13.8) by about May 2028, up from SEK 555.1 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.6x on those 2028 earnings, down from 21.4x today. This future PE is lower than the current PE for the GB Building industry at 21.3x.
• 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 6.32%, as per the Simply Wall St company report.

Inwido Future Earnings Per Share Growth

Risks

• Inwido's e-commerce business has been negatively impacted by a sudden decline in consumer spending and lower online traffic, potentially affecting future sales and operating margins.
  
• Fierce price competition in markets like Western Europe, particularly in England, is leading to pressure on profit levels and could influence net margins.
  
• Adverse weather conditions and municipal budget cuts in places like Scotland have delayed project deliveries, which could affect the timing of revenue recognition and net earnings.
  
• Inwido's decision to maintain high overhead costs in anticipation of future demand may not immediately align with revenue growth, impacting short-term profitability and operating margins.
  
• Challenges in executing M&A strategy and facing intense competition for acquisitions could slow growth ambitions, potentially affecting long-term revenue and market expansion efforts.

Valuation

• The analysts have a consensus price target of SEK232.5 for Inwido 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 SEK10.3 billion, earnings will come to SEK907.3 million, and it would be trading on a PE ratio of 17.6x, assuming you use a discount rate of 6.3%.
  
• Given the current share price of SEK205.2, the analyst price target of SEK232.5 is 11.7% 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.