Entering New Markets And Expanding DTC Channels Will Strengthen Future Market Presence

Key Takeaways

• Thule Group's diversified product range and strategic entry into new markets could significantly boost revenue and market share.
  
• Emphasis on sustainability and operational efficiency may improve margins through higher pricing and cost reductions, supporting long-term growth.
  
• Challenging conditions in North America and reliance on key segments may hinder Thule Group's revenue growth amidst high costs and uneven product demand.

Catalysts

Engages in sports and leisure company in Sweden and internationally.

• Thule Group is poised for future revenue growth due to its aggressive product launch strategy, including entering three new product categories: dog transportation, child car seats in Europe, and the acquisition of Quad Lock. This diversification and new product introduction could enhance sales and market presence.
  
• The company's forward-looking strategy includes maintaining a high pace of product launches and more front-loaded launches in 2025 to capture more of the high season. This could positively impact revenue as the company capitalizes on peak sales periods with new offerings.
  
• Thule Group's strong focus on sustainability and being ranked as a top company globally for consumer durables positions it well to attract environmentally conscious consumers, potentially impacting net margins positively by commanding higher price points for sustainable products.
  
• The planned expansion of direct-to-consumer (DTC) markets and enhanced marketing activities in 2025 is intended to increase visibility and brand engagement, potentially leading to higher revenue and better margins through direct sales channels.
  
• Thule Group's operational efficiency initiatives, including targeted inventory reductions and leveraging in-house manufacturing, are expected to continue improving margins. This strategy not only reduces costs but also enhances cash flow, providing more capital for investment into growth opportunities.

Thule Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Thule Group's revenue will grow by 12.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.8% today to 15.1% in 3 years time.
• Analysts expect earnings to reach SEK 2.0 billion (and earnings per share of SEK 18.88) by about March 2028, up from SEK 1.1 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.3x on those 2028 earnings, down from 31.5x today. This future PE is lower than the current PE for the GB Leisure industry at 54.9x.
• Analysts expect the number of shares outstanding to grow by 1.99% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.49%, as per the Simply Wall St company report.

Thule Group Future Earnings Per Share Growth

Risks

• The challenging market conditions in North America and the RV segment could continue to negatively impact Thule Group's revenue growth, particularly if these conditions persist into 2025 and beyond.
  
• Inventory challenges in the RV OE (original equipment) market and lower production plans from OE customers could result in reduced sales, affecting the company's revenue and potentially its gross margins.
  
• High SG&A costs due to multiple product launches might offset improvements in gross margins, potentially leading to pressure on net margins if these investments do not lead to commensurate revenue growth.
  
• Despite strong growth in Europe, the flat growth trend in the Americas, a significant market, may limit overall revenue expansion if not addressed, especially under continued macroeconomic uncertainties.
  
• The reliance on a few categories, such as bike-related products, which showed seasonality impacts, might lead to uneven revenue growth quarters, potentially affecting investor confidence in consistent earnings growth.

Valuation

• The analysts have a consensus price target of SEK384.167 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 SEK450.0, and the most bearish reporting a price target of just SEK340.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK13.4 billion, earnings will come to SEK2.0 billion, and it would be trading on a PE ratio of 25.3x, assuming you use a discount rate of 5.5%.
  
• Given the current share price of SEK327.8, the analyst price target of SEK384.17 is 14.7% 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.