Standardizing Operations And Expanding Jaguar, Land Rover, And BMW Dealerships Will Drive Future Success

Key Takeaways

• Service Business efficiency in Norway and growing demand for body and paint services are likely to boost net margins and profitability.
  
• Strategic acquisitions and improved new car sales from manufacturer campaigns may enhance revenue growth and future earnings synergies.
  
• Bilia faces profitability challenges due to lower car margins, higher inventory, financing costs, and acquisition-related strains, threatening future earnings and cash flow.

Catalysts

Operates as a full-service supplier for car ownership in Sweden, Norway, Luxemburg, and Belgium.

• Bilia's Service Business is expected to continue delivering strong results due to stable demand and increased efficiency, particularly in the Norwegian market, which could positively impact revenue and net margins.
  
• Efforts to standardize processes and improve profitability across newly acquired businesses are projected to yield significant improvements, enhancing operating margins and earnings.
  
• Bilia plans to further capitalize on the growing demand for body and paint services, which have higher profit margins compared to other segments, potentially increasing net margins and profitability.
  
• The company anticipates improved sales of new cars driven by strong manufacturer campaigns and lower interest rates, which are expected to boost revenue and possibly improve gross profit margins in this segment.
  
• Strategic acquisitions, like the addition of a BMW dealer in Luxembourg and expansion in the Jaguar and Land Rover operations, are expected to generate future synergies, contributing to revenue growth and improved earnings.

Bilia Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bilia's revenue will grow by 4.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.7% today to 2.8% in 3 years time.
• Analysts expect earnings to reach SEK 1.3 billion (and earnings per share of SEK 13.59) by about March 2028, up from SEK 662.0 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 15.2x on those 2028 earnings, down from 19.1x today. This future PE is lower than the current PE for the GB Specialty Retail industry at 21.0x.
• Analysts expect the number of shares outstanding to grow by 0.59% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.76%, as per the Simply Wall St company report.

Bilia Future Earnings Per Share Growth

Risks

• The car business showed lower profitability for new cars in Sweden and Norway due to lower gross profit margins and fewer deliveries, which could negatively impact net margins if this trend continues.
  
• The drop in prices of fully electric vehicles and a slightly high inventory of used cars in Sweden and Norway suggest potential risks in maintaining stable revenues and margins within the Car Business.
  
• Acquisition-related costs and increased net debt, which has risen to SEK 2.9 billion, could strain financial resources, impacting future earnings and cash flow availability.
  
• Bilia is facing higher financing costs due to elevated interest rates compared to historical levels, potentially affecting net margins and earnings until rates decrease.
  
• Despite a focus on improving operational efficiency, particularly in Norway and new acquisitions, execution risks remain that could hinder achieving targeted profitability improvements in the Service Business, impacting overall earnings growth.

Valuation

• The analysts have a consensus price target of SEK162.5 for Bilia 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 SEK45.0 billion, earnings will come to SEK1.3 billion, and it would be trading on a PE ratio of 15.2x, assuming you use a discount rate of 7.8%.
• Given the current share price of SEK136.5, the analyst price target of SEK162.5 is 16.0% 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.