Expansion Into US Cleanroom Segment Will Open Future Opportunities

Key Takeaways

• Focus on industrial air cleaners in Europe and APAC could drive significant revenue growth leveraging product versatility and addressing critical application areas.
  
• Supply chain consolidation and new service partnerships are anticipated to enhance cost efficiency, boosting net margins and profitability.
  
• Persistent challenges such as contract disruptions, regional sales declines, and high service costs threaten QleanAir's revenue stability and profitability in key markets.

Catalysts

Engages in the provision of air cleaning solutions for professional and public indoor environments in Sweden and internationally.

• QleanAir is focusing on the industrial segment for air cleaners in Europe and APAC, which has strong growth potential; this could drive revenue growth as they leverage their product versatility and address critical application areas.
  
• The transition to a new service partner in Germany is expected to lead to improved service cost efficiency in 2025, positively impacting net margins.
  
• The completion of the supply chain consolidation should enhance cost control, contributing to higher net margins in the future.
  
• A strategic focus on customer engagement and product development is expected to enhance sales efficiency, potentially improving both revenue and operating profit margins.
  
• Expansion in the cleanroom segment, especially within the U.S., with a solid contracted backlog for 2025, suggests significant potential for revenue growth.

QleanAir Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming QleanAir's revenue will grow by 8.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.3% today to 11.6% in 3 years time.
• Analysts expect earnings to reach SEK 66.2 million (and earnings per share of SEK 4.46) by about May 2028, up from SEK -1.4 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 6.5x on those 2028 earnings, up from -135.3x today. This future PE is lower than the current PE for the SE Commercial Services industry at 18.7x.
• 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 7.32%, as per the Simply Wall St company report.

QleanAir Future Earnings Per Share Growth

Risks

• The absence of the Curexa contract and the low point of Japanese renewals to finance companies significantly impacted both the top and bottom line, leading to a loss in adjusted EBIT, which directly affects the company's earnings.
  
• Declines in sales in EMEA and APAC, coupled with a challenging economic environment and longer sales cycles, caused revenue to fall 16% compared to last year, reflecting potential risks in future revenue growth.
  
• The weaker Japanese yen and the low point in renewal base for contracts in Japan indicate challenges in maintaining stable revenues from a key market, potentially affecting net margins.
  
• The company faces project execution risks, exemplified by the negative impact of the canceled Curexa project and related lawsuits, which can affect profitability and overall earnings.
  
• High service costs in Germany due to transitioning partners and a prior year's low performance could negatively impact net margins and financial stability if not successfully managed going forward.

Valuation

• The analysts have a consensus price target of SEK25.0 for QleanAir 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 SEK569.3 million, earnings will come to SEK66.2 million, and it would be trading on a PE ratio of 6.5x, assuming you use a discount rate of 7.3%.
• Given the current share price of SEK13.05, the analyst price target of SEK25.0 is 47.8% 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.