Acquisitions And Construction Recovery Will Create New Prospects

Key Takeaways

• Volati’s strategic acquisitions strengthen future revenue potential through expanded market reach and operational efficiencies.
  
• Improved EBITDA margins and expanded credit facilities indicate potential for increased profitability and sustained acquisition-driven growth.
  
• Challenging market conditions and financial performance may affect Volati's growth, investor confidence, and financial flexibility, with additional pressure from currency fluctuations.

Catalysts

A private equity firm specializing in growth capital, buyouts, add on acquisitions in mature and middle market companies.

• Volati's acquisition strategy, with 27 acquisitions since 2020 and significant recent purchases, provides a strong foundation for future revenue growth through expanded market reach and enhanced operational efficiencies.
  
• The construction-related segment, a significant market for Volati, shows promising signs of stabilization and recovery, which could drive future revenue and organic growth.
  
• Improved EBITDA margins witnessed in recent quarters, driven by cost control, synergy realization, and operational improvements, suggest potential for increased profitability as market conditions improve.
  
• Volati's platforms have shown resilience and strategic structural measures put in place are preparing them to capitalize on market recovery, potentially impacting future earnings positively.
  
• Expansion of credit facilities enhances Volati’s liquidity position, enabling continued acquisition-driven growth and helping close the growth gap, potentially boosting future revenue and earnings.

Volati Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Volati's revenue will grow by 7.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.7% today to 7.1% in 3 years time.
• Analysts expect earnings to reach SEK 720.1 million (and earnings per share of SEK 6.93) by about May 2028, up from SEK 217.0 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 19.1x on those 2028 earnings, down from 43.5x today. This future PE is lower than the current PE for the GB Industrials industry at 33.7x.
• 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 5.85%, as per the Simply Wall St company report.

Volati Future Earnings Per Share Growth

Risks

• Market conditions remain uncertain, particularly in the construction and agricultural segments, which could impact Volati's revenue growth potential.
  
• Volati has not met its financial growth targets in recent years, creating a growth gap that may affect investor confidence in their ability to deliver consistent EBITDA growth.
  
• The net debt-to-EBITDA ratio has increased to 2.9, reaching the upper limit of their financial goal range and potentially impacting financial flexibility for acquisitions.
  
• Several business areas, such as the Tornum Group within the Industry segment, continue to face slow market conditions across Europe, potentially affecting overall revenue and margin performance.
  
• Currency fluctuations, especially in internal loans and trade tariffs, could negatively influence net margins and financial outcomes as seen in the increased net financial costs reported.

Valuation

• The analysts have a consensus price target of SEK147.0 for Volati 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 SEK10.1 billion, earnings will come to SEK720.1 million, and it would be trading on a PE ratio of 19.1x, assuming you use a discount rate of 5.9%.
  
• Given the current share price of SEK119.0, the analyst price target of SEK147.0 is 19.0% 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.