Expansion Of Craft Teamwear In The US And Warehouse Automation In Europe Will Improve Efficiency

Key Takeaways

• Increasing local stocks and automating warehouses are strategic moves to enhance distribution and operational efficiency, supporting revenue and margin growth.
  
• Expansion in the U.S. and sourcing diversification are key to future earnings growth and stable gross margins amidst economic challenges.
  
• Economic struggles in Europe, tariff uncertainties, and challenges in market expansions pose risks to New Wave Group's revenue and financial stability.

Catalysts

Designs, acquires, and develops brands and products in the corporate, sports, gifts, and home furnishings sectors in Sweden, the United States, Central Europe, rest of Nordiac countries, Southern Europe, and internationally.

• New Wave Group plans to increase its presence in Canada by establishing local stocks for its brands, which should enhance distribution efficiency and likely lead to revenue growth in the region.
  
• By automating existing warehouses in Netherlands, France, and Germany, the company is expected to improve operational efficiency, reducing costs and potentially improving net margins.
  
• The expansion and positive reception of Craft teamwear in the U.S., with commitments to promise profit by 2026, is a catalyst for future earnings growth.
  
• The sourcing diversification strategy, including the opening of a sourcing office in Alexandria, aims to mitigate tariff impacts and maintain stable gross margins, thus supporting earnings.
  
• Despite the tough market, New Wave continues to implement cost controls and efficiency improvements, which are likely to protect, or possibly improve, net margins under weak economic conditions.

New Wave Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming New Wave Group's revenue will grow by 7.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.2% today to 13.3% in 3 years time.
• Analysts expect earnings to reach SEK 1.6 billion (and earnings per share of SEK 11.82) by about March 2028, up from SEK 880.4 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting SEK1.9 billion in earnings, and the most bearish expecting SEK1.3 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.9x on those 2028 earnings, down from 15.7x today. This future PE is lower than the current PE for the GB Luxury industry at 15.9x.
• 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 6.43%, as per the Simply Wall St company report.

New Wave Group Future Earnings Per Share Growth

Risks

• The persistent economic struggle in key European markets like Sweden and Germany poses a risk to New Wave Group's revenue growth, as these regions are showing signs of economic depression.
  
• Uncertainty related to tariffs and duties, particularly involving the U.S., could affect net margins if sudden changes occur while goods are in transit, leading to increased costs and reduced profitability.
  
• The Gifts & Home Furnishings segment faces significant challenges, with decreasing sales among clients, impacting overall revenue and net earnings.
  
• There is considerable risk associated with the execution of new market entries and expansions, especially in the U.S. and Canada, where substantial investments in inventory and facilities are required without guaranteed immediate returns.
  
• The unpredictable nature of trading business and reliance on large one-time orders from clients like Amazon and Costco can lead to volatile revenue streams, affecting overall financial stability and forecasting.

Valuation

• The analysts have a consensus price target of SEK136.5 for New Wave Group 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 SEK11.8 billion, earnings will come to SEK1.6 billion, and it would be trading on a PE ratio of 13.9x, assuming you use a discount rate of 6.4%.
• Given the current share price of SEK103.9, the analyst price target of SEK136.5 is 23.9% 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.