Acquisitions Of Orbit One And Leden Will Improve Operational Efficiency And Expand Global Reach

Key Takeaways

• HANZA’s decentralized structure and strategic acquisitions could drive revenue growth through regional expansion and improved operational efficiencies.
  
• Strong cash flow and the 2025 plan position HANZA well for profitability, margin improvement, and financial stability.
  
• Economic downturn, cash flow dependency, and market weakness could hinder Hanza's growth, while acquisition strategies add risk amidst pressure to attract new customers.

Catalysts

Provides manufacturing solutions.

• HANZA's focus on local complete manufacturing and the integration of MIG manufacturing solutions is expected to streamline customer supply chains, potentially leading to increased customer acquisitions and revenue growth.
  
• The company's decentralized, modular, and scalable structure allows simultaneous expansion in multiple regions, which could drive future revenue growth by increasing their geographic footprint and customer base.
  
• HANZA's strategic acquisitions, such as Orbit One and plans with Leden, are designed to enhance customer value and operational efficiencies. This could improve net margins as these integrations potentially lead to cost savings and increased synergies.
  
• The company’s strong cash flow is anticipated to support future growth initiatives and reduce net debt, positively impacting earnings and financial stability.
  
• The HANZA 2025 plan aims to improve operational targets and increase the operating margin to 8% by 2025, which should enhance profitability and earnings if successful.

Hanza Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Hanza's revenue will grow by 14.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.3% today to 5.6% in 3 years time.
• Analysts expect earnings to reach SEK 408.3 million (and earnings per share of SEK 8.87) by about March 2028, up from SEK 111.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting SEK483.6 million in earnings, and the most bearish expecting SEK342.3 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.2x on those 2028 earnings, down from 32.3x today. This future PE is lower than the current PE for the SE Electronic industry at 25.7x.
• 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 6.64%, as per the Simply Wall St company report.

Hanza Future Earnings Per Share Growth

Risks

• The recent economic downturn and ongoing recession could slow HANZA's growth, potentially reducing revenues and impacting their sales targets if the economy takes longer to recover than anticipated.
  
• HANZA relies heavily on cash flow for its operations and growth, and any disruptions in this area, such as unexpected increases in costs or operational inefficiencies, could negatively affect its net margins and operational capacity.
  
• HANZA's strategy includes acquisitions and expansions, such as with Orbit One and Leden, which carry risks of integration challenges, unexpected costs, and potential dilution of existing earnings if not successfully managed.
  
• Despite a positive outlook in certain markets like Germany, the weak market conditions present a challenge; negative organic growth in key areas could hinder revenue and margin targets if the market does not improve as expected.
  
• HANZA's ongoing need for new customers and orders to achieve revenue growth targets puts pressure on its sales strategy, which might strain resources and lead to variability in earnings if anticipated demand does not materialize.

Valuation

• The analysts have a consensus price target of SEK87.333 for Hanza 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 SEK100.0, and the most bearish reporting a price target of just SEK80.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK7.3 billion, earnings will come to SEK408.3 million, and it would be trading on a PE ratio of 11.2x, assuming you use a discount rate of 6.6%.
• Given the current share price of SEK82.0, the analyst price target of SEK87.33 is 6.1% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.