Selektope Will Lead The Maritime Industry Toward Sustainable Practices

Key Takeaways

• Sustainability focus and regulatory support position Selektope for revenue growth by addressing environmental challenges in the maritime industry.
  
• Strong presence and expansion in Asia, combined with operational efficiencies, enhance growth prospects and stabilize future earnings.
  
• Regulatory challenges and heavy market dependence create risks to revenue if approvals are not renewed or major customers' growth stagnates.

Catalysts

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

• I-Tech's product, Selektope, is addressing significant environmental challenges in the maritime industry, such as reducing CO2 emissions and preventing invasive species transfer. This elevates its potential for revenue growth as global regulations and consumer demand push the industry towards more sustainable practices.
  
• Expansion in the Asian market, particularly in China, Japan, and Korea, represents a major growth opportunity. The company is already seeing 97% of its sales in Asia, with more opportunities to penetrate the 20,000 annual dry dockings and the 1,800 new ships built annually, likely improving revenue streams.
  
• I-Tech's operational improvements in production are expected to sustainably increase gross margins over time, enhancing net margins as the company benefits from increased efficiencies and reduced production costs.
  
• With a broad network of potential customers in the top global antifouling coating companies and ongoing diversification of its client base, I-Tech's revenue stream is poised to become more robust and less reliant on single clients, supporting stable and increased future earnings.
  
• Continued regulatory processes that emphasize Selektope's environmental benefits could lead to favorable decisions in both the EU and potentially the US, positively impacting market access and future revenue growth.

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 February 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 11.6x on those 2028 earnings, down from 24.3x today. This future PE is lower than the current PE for the SE Chemicals industry at 19.9x.
• 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 5.06%, as per the Simply Wall St company report.

I-Tech Future Earnings Per Share Growth

Risks

• Regulatory challenges in the EU could impact market access and result in significant costs, affecting revenue and net profits if Selektope's approval is not renewed.
  
• Dependence on a limited set of major markets, particularly Northeast Asia, means market volatility or geopolitical issues in this region could impact revenues, limiting diversification across other regions.
  
• The limited and slow penetration into the U.S. market due to regulatory processes and potential import duties could constrain revenue growth potential.
  
• The complex and potentially expensive ongoing regulatory processes for biocides, especially if there are issues similar to those in the EU, could affect net margins and financial stability.
  
• High levels of sales concentration with significant reliance on a major customer, Chugoku, may pose a risk to revenues and earnings if any relationship dynamics change or if the customer’s growth stagnates.

Valuation

• The analysts have a consensus price target of SEK96.5 for I-Tech 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 SEK125.0, and the most bearish reporting a price target of just SEK68.0.
  
• 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 11.6x, assuming you use a discount rate of 5.1%.
  
• Given the current share price of SEK79.5, the analyst price target of SEK96.5 is 17.6% 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.