Electric Vehicle Charging And Environmental Sampling Acquisitions Will Strengthen Future Operations

Key Takeaways

• Strategic acquisitions in high-growth sectors like electric vehicle charging are set to significantly bolster future revenue expansion.
  
• Restructuring into distinct business areas enhances transparency and efficiency, aligning with environmental goals to improve margins and reduce costs.
  
• Sdiptech faces potential challenges from recent acquisitions, inconsistent organic growth, and external economic factors affecting revenue and profit margins.

Catalysts

Provides technical services for infrastructures in Sweden, the United Kingdom, Germany, Denmark, Italy, the Netherlands, Austria, Norway, Finland, the Unites States, and internationally.

• Sdiptech's recent acquisitions in high-growth areas such as electric vehicle charging and environmental sampling are poised to significantly contribute to future revenue growth as these sectors expand.
  
• The planned focus on acquisitions within their preferred geographies and sectors, supported by a strong financial position, is expected to drive steady revenue expansion and potentially improved margins.
  
• The restructuring into four business areas is likely to make operations more transparent, potentially boosting operational efficiency and net margins.
  
• The aim to achieve a 50% reduction in CO2 intensity by 2026 aligns with growing environmental awareness, potentially reducing long-term operational costs and enhancing the company's appeal, which may positively impact earnings.
  
• Despite geopolitical and economic uncertainties, the company is strategically positioned in sectors that offer resilient demand, suggesting potential for continued organic growth and stable earnings.

Sdiptech Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Sdiptech's revenue will grow by 8.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.1% today to 9.0% in 3 years time.
• Analysts expect earnings to reach SEK 588.9 million (and earnings per share of SEK 15.16) by about April 2028, up from SEK 418.0 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 23.7x on those 2028 earnings, up from 16.7x today. This future PE is greater than the current PE for the SE Commercial Services industry at 17.7x.
• 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 6.25%, as per the Simply Wall St company report.

Sdiptech Future Earnings Per Share Growth

Risks

• Sdiptech's recent acquisitions have temporarily increased the debt ratio, which could impact financial flexibility and future earnings if the acquired companies do not perform as expected.
  
• The company's organic growth has been inconsistent, with negative growth reported for the latest quarter, which could affect future revenue forecasts and overall profitability.
  
• Exposure to the construction sector and related projects, which resulted in significant one-off expenses, poses a risk to profit margins if such issues persist or recur.
  
• Economic uncertainties and geopolitical factors may affect the demand for infrastructure solutions, potentially impacting revenue growth and financial stability.
  
• Increased interest rates have affected profit after tax and earnings per share for the full year, and any further rate hikes could also impact net margins and cash flow.

Valuation

• The analysts have a consensus price target of SEK314.75 for Sdiptech 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 SEK365.0, and the most bearish reporting a price target of just SEK230.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK6.5 billion, earnings will come to SEK588.9 million, and it would be trading on a PE ratio of 23.7x, assuming you use a discount rate of 6.3%.
• Given the current share price of SEK183.2, the analyst price target of SEK314.75 is 41.8% 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.