Launching Six New Products Tailored To Critical Needs Will Drive Traction Across Regions

Key Takeaways

• Focus on industrial air cleaners in Europe and APAC is set to boost revenues and margins by addressing critical customer needs effectively.
  
• New service partnerships and product introductions are expected to lower costs and drive revenue growth, especially in strategic markets.
  
• The absence of key contracts and operational challenges across regions highlight revenue volatility, currency risk, and the need for improved service strategies.

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, particularly in Europe and APAC, where they see strong growth potential. This shift in focus is expected to improve sales efficiency and could lead to increased revenues and margins by meeting more critical customer needs.
  
• The introduction of six new products tailored to critical needs and having a sharp focus on strategic markets like France are likely to drive future revenue growth as these products gain traction across various regions.
  
• The transition to a new service partner in Germany is anticipated to reduce service costs, thereby improving net margins following the previous partner's underperformance in 2024.
  
• A strong contracted backlog for clean rooms in the U.S. for 2025, estimated at around SEK 30-35 million, will likely enhance revenue streams throughout the year, featuring both large and smaller order deliveries.
  
• Expansion within the cabin solutions sector, including recent innovations like the FS70 SRE for the smoking-room segment, is expected to stabilize and potentially grow revenues while leveraging the company's market leadership in this mature sector.

QleanAir Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming QleanAir's revenue will grow by 6.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.3% today to 20.0% in 3 years time.
• Analysts expect earnings to reach SEK 110.0 million (and earnings per share of SEK 7.47) by about February 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 3.1x on those 2028 earnings, up from -155.5x today. This future PE is lower than the current PE for the SE Commercial Services industry at 19.5x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.21%, as per the Simply Wall St company report.

QleanAir Future Earnings Per Share Growth

Risks

• The absence of the Curexa contract has significantly impacted sales and profits, showing a lack of diversification and dependency on specific contracts, affecting revenue stability and earnings.
  
• The low point of contract renewals in Japan, coupled with a weaker Japanese yen, has reduced revenue, demonstrating currency risk and the impact of cyclical sales, which could continue to affect net margins negatively.
  
• Cancelled orders of air cleaners in Germany owing to post-COVID adjustments led to a decline in the installed base, impacting recurring revenue streams and suggesting potential future revenue volatility.
  
• A challenging market environment in EMEA, with longer sales cycles and weaker economic conditions, could affect sales efficiency and hinder revenue growth projections.
  
• High service costs in Germany due to previous inadequate service partners affected profitability, and while measures are being taken to address this, it highlights the operational risks linked to supply chain and service transitions, impacting net margins and earnings.

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 SEK549.7 million, earnings will come to SEK110.0 million, and it would be trading on a PE ratio of 3.1x, assuming you use a discount rate of 7.2%.
  
• Given the current share price of SEK15.0, the analyst price target of SEK25.0 is 40.0% 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.