Automated Warehouses Will Improve Operational Efficiency In Denmark, Norway, And Finland

Key Takeaways

• Completion of new automated warehouses and integration efforts in Poland are set to improve efficiency, margins, and profitability.
  
• Strategic leadership and supply chain optimizations are expected to drive growth, enhance margins, and increase earnings through cost savings.
  
• Integration costs, flat growth, and competitive pressures are impacting financial performance and profitability expectations.

Catalysts

Operates in the automotive aftermarket business in Sweden, Norway, Denmark, Poland, Estonia, Latvia, Lithuania, and Finland.

• The completion of new automated central warehouses in Denmark, Norway, and Finland is expected to significantly improve operational efficiency, service levels, and warehouse productivity, which could increase revenue through enhanced customer offerings and potentially improve net margins by reducing operational costs.
  
• The integration and optimization efforts in Poland aim to turn the acquired Elit Polska business profitable, which could improve overall earnings as integration costs taper off and efficiencies are realized over the next year.
  
• Continued focus on supply chain optimizations, such as price adjustments and improved purchasing, is expected to enhance gross margins and support organic growth, directly benefiting the company's earnings in the long term.
  
• The introduction of new board members with extensive industry and financial expertise is positioned to drive strategic decisions that could enhance profitability margins and foster long-term growth.
  
• Investments in efficiency enhancements, including logistics and ERP systems, are projected to reduce future leverage and interest expenses, thereby potentially increasing net earnings through cost savings over time.

Meko Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Meko's revenue will grow by 3.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.3% today to 3.7% in 3 years time.
• Analysts expect earnings to reach SEK 754.0 million (and earnings per share of SEK 13.48) by about February 2028, up from SEK 433.0 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 13.3x on those 2028 earnings, down from 16.2x today. This future PE is lower than the current PE for the GB Retail Distributors industry at 27.8x.
• Analysts expect the number of shares outstanding to decline by 0.05% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.71%, as per the Simply Wall St company report.

Meko Future Earnings Per Share Growth

Risks

• The integration of Elit Polska is incurring significant costs and currently running at a loss, impacting EBIT and potentially affecting net margins until the integration completes in 2025.
  
• MEKO's Q4 2024 organic growth was flat due to a mild winter, and sales-wise the period was challenging, which could indicate vulnerabilities in revenue that impact overall earnings if seasonal trends repeat.
  
• The company's warehouse expansion in Denmark and Norway involves substantial investments and temporary increased lease liabilities that could increase net interest expenses and impact future financial performance.
  
• There are competitive pressures and pricing challenges in Poland, contributing to financial difficulties in the region and diminishing revenue growth potential.
  
• MEKO's effective tax rate was higher than expected in 2024, if maintained, could impact net margins negatively and diminish overall profitability expectations.

Valuation

• The analysts have a consensus price target of SEK150.0 for Meko 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 SEK20.3 billion, earnings will come to SEK754.0 million, and it would be trading on a PE ratio of 13.3x, assuming you use a discount rate of 6.7%.
  
• Given the current share price of SEK125.6, the analyst price target of SEK150.0 is 16.3% 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.