Integration Of EV Charging And Water Purification Acquisitions Will Improve Future Performance

Key Takeaways

• Strategic acquisitions in high-growth sectors and reduced construction dependency are expected to stabilize margins and boost earnings by 2025.
  
• Sustainability efforts and cash flow improvements support future growth, enhance brand appeal, and leverage strong financial positioning for strategic expansion.
  
• Challenges in organic growth, construction sector exposure, underperforming segments, rising debt, and interest rates could impact Sdiptech’s margins and future financial stability.

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 strategic focus on acquisitions, particularly in high-growth sectors like electric vehicle charging equipment and water purification, is expected to bolster revenue and earnings as these acquisitions become fully integrated and contribute to the company's financials in 2025.
  
• The company's shift away from construction sector dependencies towards more resilient businesses is likely to stabilize and potentially increase net margins, given the historical volatility and project-related risks associated with construction.
  
• The strong cash flow performance and working capital improvements indicate efficient operations that could support future earnings growth through the ability to reinvest in the business or reduce debt levels.
  
• Sdiptech's commitment to sustainability, including a targeted 50% reduction in CO2 intensity by 2026, may enhance brand equity and market appeal, potentially driving revenue growth and improving profit margins as energy costs and environmental taxes decline.
  
• The enhanced organizational structure and appointment of experienced M&A leadership are expected to streamline operations and drive organic growth, as well as improve revenue through strategic acquisitions, leveraging the company's strong financial position.

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 February 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 22.0x on those 2028 earnings, up from 19.8x today. This future PE is greater than the current PE for the SE Commercial Services industry at 19.5x.
• 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 6.48%, as per the Simply Wall St company report.

Sdiptech Future Earnings Per Share Growth

Risks

• The company faced organic growth challenges in 2024, with organic revenue growth flat and organic profit growth negative, potentially impacting future revenue growth and profitability.
  
• Exposure to the construction sector has led to one-off costs and weaker demand, affecting profit margins, and continued exposure could destabilize future earnings.
  
• Some targeted segments, like the elevator business in Germany, are underperforming due to challenging market conditions, impacting margins and revenue potential.
  
• The company’s debt ratio increased in the short term following recent acquisitions, which might impact net margins and financial stability if the acquired businesses do not generate expected returns promptly.
  
• Rising interest rates have negatively affected the company’s financial expenses over the year, reducing net earnings and potentially impacting future growth initiatives if interest rates stay high.

Valuation

• The analysts have a consensus price target of SEK353.5 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 22.0x, assuming you use a discount rate of 6.5%.
  
• Given the current share price of SEK217.6, the analyst price target of SEK353.5 is 38.4% 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.