Operational Efficiency And ESG Initiatives Will Strengthen Future Prospects

Key Takeaways

• Operational efficiency and restructuring in key regions are expected to enhance margins and contribute to future earnings growth.
  
• Strategic capital moves and sustainability initiatives could improve EPS and align with ESG interests, fostering long-term profitability.
  
• External economic pressures and internal challenges, including currency effects, impairments, and legal costs, threaten Loomis's revenue growth and net margins.

Catalysts

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

• Loomis' focus on operational efficiency programs in both the U.S. and Europe is expected to improve their operating margins in the future, contributing to enhanced earnings.
  
• The restructuring plans in Europe and Latin America are anticipated to yield further improvements in net margins, as significant benefits are expected to come through in 2025.
  
• Strong organic growth driven by Automated Solutions and Loomis Pay business lines will likely bolster future revenue streams, adding to overall revenue growth.
  
• Loomis' strategic capital allocation, including potential acquisitions and share repurchases, may positively impact earnings per share (EPS) through effective reinvestment and return of capital to shareholders.
  
• Sustainability initiatives and CO2 reduction targets could foster long-term cost efficiencies and enhance margins, while also aligning with broader ESG investor interest, potentially impacting future profitability favorably.

Loomis Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Loomis's revenue will grow by 4.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.4% today to 8.6% in 3 years time.
• Analysts expect earnings to reach SEK 3.0 billion (and earnings per share of SEK 43.99) by about February 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 10.9x on those 2028 earnings, down from 17.0x today. This future PE is lower than the current PE for the GB Commercial Services industry at 19.5x.
• Analysts expect the number of shares outstanding to decline by 3.56% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.05%, as per the Simply Wall St company report.

Loomis Future Earnings Per Share Growth

Risks

• Currency effects negatively impacted revenue growth, which could continue to impact future revenues and net margins.
  
• Hyperinflationary economies, such as those in Argentina, led to monetary losses, influencing cash flows and overall earnings negatively.
  
• Significant goodwill impairments, particularly in the U.K., may indicate challenges in market conditions or operational inefficiencies that could impact earnings.
  
• The effect of one-time benefits from U.S. tariffs on volumes suggests that these results may not be sustainable, potentially affecting organic revenue and operating margins if not replaced by continual improvements or new business.
  
• Legal provisions, such as the one related to a case in Denmark, and restructuring charges, could increase operational costs and reduce net margins in the short term.

Valuation

• The analysts have a consensus price target of SEK447.2 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 SEK520.0, and the most bearish reporting a price target of just SEK389.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK34.6 billion, earnings will come to SEK3.0 billion, and it would be trading on a PE ratio of 10.9x, assuming you use a discount rate of 6.0%.
  
• Given the current share price of SEK407.6, the analyst price target of SEK447.2 is 8.9% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.