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 11.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.0% today to 10.1% in 3 years time.
• Analysts expect earnings to reach SEK 718.0 million (and earnings per share of SEK 18.44) by about March 2028, up from SEK 418.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting SEK835 million in earnings, and the most bearish expecting SEK601 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.1x on those 2028 earnings, up from 18.3x today. This future PE is greater than the current PE for the SE Commercial Services industry at 18.2x.
• 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 6.53%, 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 SEK354.75 for Sdiptech 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 SEK7.1 billion, earnings will come to SEK718.0 million, and it would be trading on a PE ratio of 22.1x, assuming you use a discount rate of 6.5%.
• Given the current share price of SEK201.2, the analyst price target of SEK354.75 is 43.3% 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.