Award-Winning Premium Products And D2C Expansion Will Drive Sustained Revenue And Profit Growth

Key Takeaways

• New product launches, particularly in premium bike carriers and juvenile/pet segments, are key drivers of Thule's revenue growth.
  
• Thule's expansion into direct-to-consumer channels and operational efficiency is improving profitability and net margins.
  
• Challenging market conditions and strategic shifts in product categories may hinder Thule's revenue growth and margins, especially with high upfront investments in new areas.

Catalysts

Operates as a sports and outdoor company in Sweden and internationally.

• Thule Group is experiencing growth driven by new product launches in categories such as Juvenile & Pet and bike-related products. This includes a successful expansion into premium bike carriers and new entries like dog transportation and car seats, which are likely to continue driving revenue growth.
  
• The company’s gross margin improvement to 42.9% in Q3, largely due to lower material costs and a favorable product mix with premium products, suggests that Thule may sustain or slightly increase net margins if cost efficiencies and premium sales persist.
  
• Thule's strong cash flow from operations, which reached SEK 955 million due to reductions in accounts receivables and inventory levels, along with anticipated inventory efficiency improvements, can enhance net margins and overall profitability.
  
• The expansion of Thule’s D2C operations into new countries suggests potential for increased revenue streams and potentially higher net margins, considering D2C channels often offer better margins compared to traditional wholesale channels.
  
• The strategic focus on new product launches and category expansions, particularly with innovative products receiving positive market reception and awards, positions Thule Group well for sustained earnings growth as these products mature and gain market share.

Thule Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Thule Group's revenue will grow by 14.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.5% today to 15.8% in 3 years time.
• Analysts expect earnings to reach SEK 2.2 billion (and earnings per share of SEK 20.54) by about January 2028, up from SEK 1.2 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.8x on those 2028 earnings, down from 30.5x today. This future PE is greater than the current PE for the GB Leisure industry at 16.0x.
• Analysts expect the number of shares outstanding to grow by 0.9% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.32%, as per the Simply Wall St company report.

Thule Group Future Earnings Per Share Growth

Risks

• The market for Sports & Cargo Carriers remains tough, particularly in North America, with cautious consumers and retailers, which could impact Thule's revenue growth in these regions.
  
• There is a decline in Packs, Bags & Luggage, attributed to the exit from legacy product categories, which could negatively influence overall sales and revenue.
  
• The RV Products category shows flat sales with a decline in Original Equipment Manufacturer (OEM) sales, reflecting underlying weaknesses in the RV market that could adversely affect revenue.
  
• The continued reliance on new product launches to drive growth may result in increased SG&A expenses, potentially pressuring net margins if sales do not sufficiently offset these costs.
  
• The expansion into new categories like car seats requires significant upfront investment and execution, creating risks in terms of fluctuating earnings as these markets are built up over time.

Valuation

• The analysts have a consensus price target of SEK 385.0 for Thule Group 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 SEK 445.0, and the most bearish reporting a price target of just SEK 350.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK 14.1 billion, earnings will come to SEK 2.2 billion, and it would be trading on a PE ratio of 21.8x, assuming you use a discount rate of 5.3%.
• Given the current share price of SEK 341.6, the analyst's price target of SEK 385.0 is 11.3% 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.