EyeView Rollout To Reduce Waiting Times And Costs By 2025

Key Takeaways

• Synsam's subscription model and store expansion in new regions can drive growth, improve revenues, and enhance customer retention.
  
• Investments in technology and store upgrades aim to reduce costs and enhance customer experience, potentially boosting profitability and earnings.
  
• Economic uncertainties, significant upfront costs, intense competition, and rising inventories could pressure Synsam's margins and delay revenue contributions from strategic rollouts.

Catalysts

Operates as an optical retailer in the Nordic Region.

• Synsam's lifestyle subscription business has significant growth potential, as it currently represents 53% of total sales with room for further penetration in Scandinavian markets. Increasing the subscription base can lead to recurring revenue and higher customer retention, positively impacting overall revenues and earnings.
  
• The rollout of Synsam EyeView is expected to complete by the end of 2025, enhancing stores' operational capacity and customer satisfaction. This technological upgrade, while incurring initial costs, is expected to reduce waiting times and optician consultant costs, potentially improving net margins in the long run.
  
• Synsam plans to continue expanding their store network, with a target of 90 new stores between 2024 and 2026, focusing on smaller towns with lower rent costs. This expansion strategy can drive revenue growth and provide diversified geographical income streams.
  
• Continued investment in store upgrades and inventory is part of Synsam's strategy to enhance customer experience and offerings. The optimization in inventory levels and store upgrades aims to sustain their financial goals for organic growth, potentially improving profitability and earnings.
  
• Synsam Hearing, still in the pilot phase, presents opportunities for growth through synergies in combining optical and hearing solutions, expanding the customer base, and potentially increasing revenue contributions as the division matures and scales.

Synsam Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Synsam's revenue will grow by 7.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.7% today to 9.5% in 3 years time.
• Analysts expect earnings to reach SEK 753.4 million (and earnings per share of SEK 5.22) by about May 2028, up from SEK 366.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting SEK917 million in earnings, and the most bearish expecting SEK589.8 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.3x on those 2028 earnings, down from 19.3x today. This future PE is lower than the current PE for the SE Specialty Retail industry at 20.4x.
• Analysts expect the number of shares outstanding to decline by 0.64% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.2%, as per the Simply Wall St company report.

Synsam Future Earnings Per Share Growth

Risks

• The economic environment remains uncertain, and while improvements are hoped for, the company has launched cost-saving programs to prepare for a potentially worse economic situation, which could affect revenue if consumer sentiment does not improve.
  
• The rollout of Synsam EyeView involves significant upfront costs related to the implementation and training, which could weigh on net margins, particularly as the breadth and duration of these phases are currently uncertain.
  
• The intensely competitive market in Denmark, coupled with a challenging consumer market there, might pressure revenues and margins if competitive dynamics do not favor Synsam.
  
• Synsam is in the test phase for the new Synsam EyeView in Finland and Denmark, which could delay revenue contributions if the rollout proves less successful than anticipated or takes longer to implement across different regions.
  
• Store inventory levels are increasing, driven by an expansion strategy and a larger assortment offering, which could tie up additional capital and impact earnings if sales do not correspondingly increase to justify higher inventories.

Valuation

• The analysts have a consensus price target of SEK66.333 for Synsam 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 SEK75.0, and the most bearish reporting a price target of just SEK60.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK7.9 billion, earnings will come to SEK753.4 million, and it would be trading on a PE ratio of 15.3x, assuming you use a discount rate of 7.2%.
• Given the current share price of SEK49.0, the analyst price target of SEK66.33 is 26.1% 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.