Leverage Of Partnerships And Acquisitions For Local POS Solutions Will Broaden Market Reach

Key Takeaways

• Restructuring and operational efficiency programs in Europe, Latin America, and the U.S. are poised to enhance profitability and future earnings growth.
  
• Loomis Pay's focus on strategic partnerships and Automated Solutions is set to drive scalable growth and improved revenue and margin expansion.
  
• Currency effects, tariffs, impairments, hyperinflation, and legal cases all pose risks to Loomis' future financial performance, potentially impacting revenue, profitability, and margins.

Catalysts

Provides solutions for the distribution, payments, handling, storage, and recycling of cash and other valuables.

• The ongoing restructuring programs in Europe and Latin America are expected to deliver further margin improvements throughout 2025, contributing to enhanced profitability and increased net margins.
  
• The U.S. segment is benefiting from operational efficiency programs, which have already led to improvements in service quality and operating margins, indicating potential for future earnings growth as they continue to optimize operations.
  
• Loomis Pay's strategic shift towards leveraging partnerships and acquisitions for local POS solutions hints at scalable growth and increased revenue potential, particularly as it expands its all-in-one payment solution into new markets.
  
• A focus on Automated Solutions, which has been experiencing double-digit growth, is expected to continue contributing positively to Loomis' revenue and margin mix, thereby supporting higher net margin expansion.
  
• The company has a history of strong cash flow and is well-positioned to maintain an operating cash flow above 90% relative to EBITA during the upcoming strategic period, indicating potential for increased shareholder returns and reinvestment into growth initiatives.

Loomis Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Loomis's revenue will grow by 4.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.4% today to 8.9% in 3 years time.
• Analysts expect earnings to reach SEK 3.1 billion (and earnings per share of SEK 44.56) by about April 2028, up from SEK 1.6 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 12.0x on those 2028 earnings, down from 16.0x today. This future PE is lower than the current PE for the GB Commercial Services industry at 17.7x.
• Analysts expect the number of shares outstanding to decline by 2.68% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.28%, as per the Simply Wall St company report.

Loomis Future Earnings Per Share Growth

Risks

• Currency effects had a negative impact on revenue growth, which can hinder future revenue and earnings performance if currency fluctuations continue to be unfavorable.
  
• Increase in U.S. tariffs has contributed onetime volumes, suggesting that some recent revenue growth may not be sustainable, potentially impacting future revenue and earnings.
  
• Costs related to impairments of goodwill and intangible assets, particularly in the UK segment, indicate possible overvaluation or poor performance in past acquisitions, potentially impacting net margins and earnings.
  
• Hyperinflationary economies like Argentina led to monetary losses, and continuing high inflation levels in such regions could negatively affect future financial performance, impacting profitability and net margins.
  
• Legal cases, such as the one ongoing in Denmark, could lead to unexpected provisions and financial liabilities, adversely affecting earnings and net margins.

Valuation

• The analysts have a consensus price target of SEK485.25 for Loomis 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 SEK525.0, and the most bearish reporting a price target of just SEK427.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK34.4 billion, earnings will come to SEK3.1 billion, and it would be trading on a PE ratio of 12.0x, assuming you use a discount rate of 6.3%.
• Given the current share price of SEK382.8, the analyst price target of SEK485.25 is 21.1% 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.