Selektope Will Address Maritime Sustainability Challenges And Expand Into New Markets

Key Takeaways

• I-Tech's sustainable technology positions it to capture a significant share in the antifouling market, enhancing potential revenue growth.
  
• Diversification and operational improvements strengthen market position, supporting long-term growth and profitability through expanded revenue streams and efficiency.
  
• Heavy reliance on a few major customers and the Asian market heightens geographic and revenue concentration risks, while EU and U.S. regulatory challenges threaten market access and growth.

Catalysts

A biotechnology company, develops, markets, and sells antifouling coating products in Sweden.

• I-Tech’s unique technology, Selektope, targets significant challenges in the maritime industry such as CO2 emissions and invasive species transfer. This focus on sustainability and effectiveness positions I-Tech to capture a substantial share of the $300 million to $500 million antifouling market opportunity, potentially increasing future revenue.
  
• The diversification of I-Tech’s customer base, with a reduction in reliance on their main customer Chugoku and a 20% increase in sales from them, indicates expanded market penetration and enhanced revenue streams supporting long-term sales growth.
  
• The data from the indocking study with Safinah Group demonstrates Selektope’s effectiveness in reducing barnacle fouling, presenting potential fuel savings for ships, and strengthening the product’s market position. Improved market adoption can lead to increased revenues and improved gross margins.
  
• Operational improvements and investments in production and cost reduction are showing initial signs of success, reflected in an increasing EBITDA margin and slightly improved gross margins. Continued operational efficiency can enhance net margins and profitability.
  
• I-Tech’s regulatory efforts in the EU and potential expansion into the U.S. market can unlock new revenue streams. The ongoing regulatory process, if successful, will allow market access and potential expansion, positively impacting future sales and earnings.

I-Tech Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming I-Tech's revenue will grow by 22.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 21.7% today to 31.9% in 3 years time.
• Analysts expect earnings to reach SEK 106.0 million (and earnings per share of SEK 8.87) by about March 2028, up from SEK 39.0 million 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 10.7x on those 2028 earnings, down from 24.7x today. This future PE is lower than the current PE for the SE Chemicals industry at 24.1x.
• 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 5.35%, as per the Simply Wall St company report.

I-Tech Future Earnings Per Share Growth

Risks

• The ongoing EU regulatory process for Selektope poses a significant risk, as nonrenewal could limit I-Tech's access to the EU market, potentially affecting revenue and market share in Europe.
  
• The heavy dependence on the Asian market, which accounted for 97% of sales, poses a geographic risk; any regulatory or economic challenges in this region could substantially impact revenues.
  
• The company's reliance on a small number of customers (CMP being a major one) for the majority of its sales suggests a risk of revenue concentration; any decline in sales from these customers could significantly impact overall revenue.
  
• The business's asset-light model, while offering flexibility, could limit control over production costs and quality, potentially squeezing net margins if external production becomes more costly.
  
• Delays or difficulties in gaining regulatory approval in new markets like the U.S. could hinder I-Tech's expansion plans, limiting future revenue growth opportunities outside its current markets.

Valuation

• The analysts have a consensus price target of SEK88.0 for I-Tech 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 SEK332.0 million, earnings will come to SEK106.0 million, and it would be trading on a PE ratio of 10.7x, assuming you use a discount rate of 5.3%.
  
• Given the current share price of SEK81.0, the analyst price target of SEK88.0 is 8.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.