FDA Approvals And Warehouse Automation Will Improve Future Prospects

Key Takeaways

• Enhanced regulatory outcomes and product offerings in the U.S. market are poised to increase Haypp's revenue and market share.
  
• Operational efficiencies and supply chain improvements could significantly boost Haypp's margins and profitability.
  
• Regulatory and supply constraints threaten Haypp Group's revenue growth and market presence, with additional challenges in advertising and emerging market profitability.

Catalysts

Operates as an online retailer of tobacco-free nicotine pouches and snus products in Sweden, Norway, rest of Europe, and the United States.

• The recent issuance of FDA marketing granted orders for flavored nicotine pouches in the U.S. strengthens the regulatory outlook and could drive category growth, particularly benefiting Haypp's position in the online channel, positively impacting future revenue and operating margins.
  
• The U.S. market is experiencing rapid brand fragmentation with new product launches being well-received by consumers, which could lead to increased market share for Haypp as they offer a wider assortment online, contributing to revenue growth.
  
• The automation of Haypp's Texas warehouse is expected to improve operational efficiency, leading to shorter lead times and material gross margin improvements as U.S. volumes grow, boosting both net margins and earnings.
  
• Haypp's Media and Insights business is expected to see substantial demand growth, leveraging regulatory tailwinds and enhancing value by providing more tailored consumer interactions, thus contributing to gross margin expansion and profitability.
  
• The potential resolution of Zyn sourcing issues, with expected supply chain improvements, could result in resumed sales and increased U.S. volumes, driving revenue growth once supply commitments are secured.

Haypp Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Haypp Group's revenue will grow by 14.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.2% today to 4.3% in 3 years time.
• Analysts expect earnings to reach SEK 238.7 million (and earnings per share of SEK 7.61) by about April 2028, up from SEK 45.0 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 16.9x on those 2028 earnings, down from 67.0x today. This future PE is lower than the current PE for the SE Specialty Retail industry at 20.3x.
• 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 6.05%, as per the Simply Wall St company report.

Haypp Group Future Earnings Per Share Growth

Risks

• The inability to sell Zyn in the U.S. due to supply constraints and regulatory requirements, without a sustained volume commitment from suppliers, poses a risk to revenue growth and market presence.
  
• Regulatory challenges, such as the issue with the tobacco license from the Stockholm municipality and the San Francisco complaint, could affect operations and profitability if not resolved favorably.
  
• Restrictions on digital advertising could limit customer acquisition and growth, impacting net sales and market expansion opportunities.
  
• The emerging market segment, despite growth, has increased sequential losses, which could stress net margins if not managed carefully.
  
• Dependence on the timely resolution of supply-demand imbalances and regulatory clarity in the U.S. market introduces uncertainty for earnings and revenue forecasts.

Valuation

• The analysts have a consensus price target of SEK116.5 for Haypp Group 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 SEK145.0, and the most bearish reporting a price target of just SEK88.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK5.5 billion, earnings will come to SEK238.7 million, and it would be trading on a PE ratio of 16.9x, assuming you use a discount rate of 6.0%.
• Given the current share price of SEK101.0, the analyst price target of SEK116.5 is 13.3% 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.