US And Canada Expansion And Teamwear Will Shape Future Markets

Key Takeaways

• Expansion into new markets and strengthening teamwear and sports segments may drive significant revenue growth and increase operating profits.
  
• Technological advancements in operations, including automation and a new ERP system, are expected to enhance efficiencies and potentially improve net margins.
  
• Geopolitical uncertainty and economic downturn risks, along with inflation and logistical challenges, threaten New Wave Group's revenue growth 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's expansion into new geographic markets, such as the U.S. and Canada, and their active development of teamwear and sports segments, could lead to significant growth in revenue.
  
• Investments in new collections and increased sales forces, especially in countries like Germany, are expected to improve sales performance and potentially drive higher revenue.
  
• The strategic outsourcing and scaling of operations in regions like Africa and Egypt will help mitigate risks associated with tariffs and logistics, preserving or potentially increasing net margins.
  
• Technological advancements and automation in warehouses using systems like iRobotics, along with a new ERP system, may enhance operational efficiencies, potentially improving net margins and earnings.
  
• The anticipated growth in the teamwear market, bolstered by New Wave's leading market position, could contribute to increased operating profits and potentially elevate the company’s gross margin in the Sports & Leisure segment.

New Wave Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming New Wave Group's revenue will grow by 6.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.3% today to 13.3% in 3 years time.
• Analysts expect earnings to reach SEK 1.5 billion (and earnings per share of SEK 10.64) by about May 2028, up from SEK 903.4 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as 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 13.8x on those 2028 earnings, down from 17.3x today. This future PE is lower than the current PE for the GB Luxury industry at 17.3x.
• 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 6.56%, as per the Simply Wall St company report.

New Wave Group Future Earnings Per Share Growth

Risks

• The complex geopolitical environment, particularly concerning the potential re-election of Trump and the uncertainty around tariffs, could disrupt supply chains and negatively impact short-term revenue and net margins due to unexpected duties on goods in transit.
  
• The economic environment in some key markets, such as the U.S. and Germany, appears less favorable than it was previously, with concerns over potential economic downturns, which poses risks to revenue growth and overall financial stability.
  
• Inflationary pressures are increasing personnel and external costs, which could squeeze net margins if not offset by sufficient revenue growth or operational efficiencies.
  
• Some areas of the business, like the Gifts and Home Furnishing segment, are struggling to become profitable, and delays in addressing these issues could hinder the company's overall earnings growth.
  
• Inventory and logistical challenges, especially the need to build up sufficient stock for expansions in North America, could constrain revenue potential if inventory levels are not aligned with sales opportunities, impacting earnings and margins.

Valuation

• The analysts have a consensus price target of SEK134.0 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 SEK11.6 billion, earnings will come to SEK1.5 billion, and it would be trading on a PE ratio of 13.8x, assuming you use a discount rate of 6.6%.
• Given the current share price of SEK117.5, the analyst price target of SEK134.0 is 12.3% 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.