Calculated Innovations And Digitalization Propel Dynamic Revenue And Earnings Growth

Key Takeaways

• Strategic exits and fundraising highlight growth opportunities, potentially increasing revenue and enhancing portfolio value through favorable asset conditions.
  
• Focus on digitalization, AI, and sustainability enhances portfolio companies' performance, aligning them with long-term trends and potentially boosting earnings.
  
• Potential liquidity challenges, geopolitical uncertainties, and expansive strategies could strain EQT's revenue, operational performance, and earnings stability.

Catalysts

A global private equity firm specializing in private capital and real asset segments.

• EQT has a strong pipeline for potential exits through private IPOs, minority stakes, and continuation vehicles, which can unlock liquidity and enhance portfolio value. This can positively impact revenue and earnings as more assets are exited at favorable conditions.
  
• The anticipated fundraising of around €100 billion over the next cycle, including launching 15 new fund strategies, highlights significant growth opportunities. Successful fundraising could lead to increased revenue from management fees as assets under management grow.
  
• EQT's focus on operational improvements, pricing initiatives, and cost efficiencies across their portfolio companies is driving healthier EBITDA growth, which suggests potential improvements in net margins and overall profitability.
  
• Strategic investments in digitalization, AI, and sustainability themes could lead to valuation uplifts in portfolio companies, impacting earnings positively due to enhanced operational performance and alignment with long-term secular trends.
  
• Expansion in the private wealth segment and new evergreen product offerings indicate growth in investor base and fee-paying assets, likely contributing to increased and stable long-term revenue streams.

EQT Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming EQT's revenue will grow by 19.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 13.7% today to 50.0% in 3 years time.
• Analysts expect earnings to reach €1.9 billion (and earnings per share of €1.39) by about November 2027, up from €301.2 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €2.2 billion in earnings, and the most bearish expecting €1.5 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 302.6x on those 2027 earnings, up from 106.2x today. This future PE is greater than the current PE for the SE Capital Markets industry at 24.2x.
• Analysts expect the number of shares outstanding to grow by 4.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.41%, as per the Simply Wall St company report.

EQT Future Earnings Per Share Growth

Risks

• EQT's comments on relatively lower exit volumes in recent years indicate potential challenges in liquidity generation, which could impact their revenue and earnings stability.
  
• The outlook on market conditions suggests uncertainty due to geopolitical risks and major elections, which could deter investor confidence and affect EQT's performance metrics like fundraisings and net margins.
  
• While EQT aims to significantly expand fundraising, achieving €100 billion might be overly optimistic under current market conditions, which could strain growth expectations and top-line revenue.
  
• There are pockets of underperformance in certain parts of the portfolio, which, although not systemic, could indicate potential areas of financial drag, impacting overall EBITDA growth and net margins.
  
• Potential dilution of focus due to the expansion into numerous new strategies and products, such as real estate and secondaries, could increase execution risk and strain operational performance, impacting future earnings stability.

Valuation

• The analysts have a consensus price target of €359.27 for EQT 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 €434.58, and the most bearish reporting a price target of just €287.07.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be €3.7 billion, earnings will come to €1.9 billion, and it would be trading on a PE ratio of 302.6x, assuming you use a discount rate of 5.4%.
  
• Given the current share price of €314.9, the analyst's price target of €359.27 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.