Leadership Transition And Vast Capital Will Drive Infrastructure Expansion

Key Takeaways

• Leadership transition could enhance operational efficiency, positively impacting earnings and strategic decision-making in private capital and infrastructure sectors.
  
• Robust fundraising and strategic market expansion suggest diversified revenue streams, bolstering long-term growth and fee-related income amidst market uncertainties.
  
• Elevated geopolitical risks and market volatility could hinder investor confidence, reduce liquidity, and impact EQT's earnings and future growth potential.

Catalysts

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

• The transition in leadership to Per Franzén is expected to continue EQT's strong track record in private capital and infrastructure, which could positively impact earnings by maintaining and potentially enhancing operational efficiency and strategic decision-making.
  
• EQT's substantial amount of dry powder (over €50 billion) positions the company well to take advantage of market downturns and acquire high-quality companies at attractive valuations, potentially boosting long-term revenue and earnings.
  
• The strategic focus on long-term trends such as digitalization and decarbonization in infrastructure investments may lead to sustained growth in this division, positively impacting future revenue streams.
  
• The success of recent and ongoing fundraising activities, such as the €21.5 billion Infrastructure VI fund and the anticipated BPEA IX reaching its target size, indicates robust investor interest despite market uncertainties, assuring significant fee-related revenue.
  
• Planned expansions into Evergreen investment structures and the U.S. private equity market during periods of uncertainty could diversify revenue and further enhance EQT's fee-related income, providing long-term growth opportunities.

EQT Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming EQT's revenue will grow by 12.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 29.3% today to 53.2% in 3 years time.
• Analysts expect earnings to reach €2.0 billion (and earnings per share of €1.7) by about April 2028, up from €776.3 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €2.6 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 19.6x on those 2028 earnings, down from 37.2x today. This future PE is greater than the current PE for the SE Capital Markets industry at 13.3x.
• Analysts expect the number of shares outstanding to decline by 0.17% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.79%, as per the Simply Wall St company report.

EQT Future Earnings Per Share Growth

Risks

• Elevated uncertainty across capital markets and geopolitical risks could lead to reduced investor confidence, potentially impacting future fundraising and fee-related revenues.
  
• Prolonged periods of market volatility and delayed exits in an uncertain environment might slow down carried interest and investment income realization, impacting earnings.
  
• Potential strains on global financial markets and inflationary pressures could lead to adverse economic conditions, affecting net margins and overall profitability.
  
• Slower deal activity and muted exit environments due to factors like tariff negotiations may reduce liquidity and influence the fundraising cycle, affecting revenue from carried interest.
  
• The reliance on successful cross-selling and the ability to expand into different geographical areas could face challenges if current geopolitical shifts impact investor sentiment and allocations, affecting future growth and fee-paying assets under management.

Valuation

• The analysts have a consensus price target of SEK311.342 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 SEK424.77, and the most bearish reporting a price target of just SEK226.09.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €3.8 billion, earnings will come to €2.0 billion, and it would be trading on a PE ratio of 19.6x, assuming you use a discount rate of 5.8%.
• Given the current share price of SEK267.4, the analyst price target of SEK311.34 is 14.1% 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.