Modus Acquisition And Prexision 8000 Launch Will Propel High-Tech Growth And Sustainability

Key Takeaways

• Strategic acquisitions and new product launches align with industry trends, potentially boosting revenue and expanding market presence across segments.
  
• Emphasis on R&D and sustainability initiatives could enhance earnings growth, operational efficiency, and environmental reputation.
  
• Currency fluctuations and stagnant order intake challenge revenue growth, while strategic investments strain margins and European markets show weakness in sales and orders.

Catalysts

Develops, manufactures, and sells production equipment for electronics industry in Sweden, rest of Europe, the United States, other Americas, China, South Korea, rest of Asia, and internationally.

• The acquisition of Modus High-Tech Electronics in Germany, specializing in optical inspection, is expected to enhance the functionality of Mycronic's High Volume division products, likely boosting revenue growth through expanded offerings.
  
• The strong market development in the High Volume segment, driven by consumer electronics including smartphones and smart devices, suggests significant potential for revenue increase from both domestic and international markets.
  
• The introduction of the new Prexision 8000 for the display market aligns with the anticipated industry shift to larger AMOLED screens, potentially impacting future revenue growth as new advanced orders materialize.
  
• Investments in R&D and innovative solutions across divisions, particularly in Global Technologies and the newly acquired Vanguard Automation, are expected to drive future earnings growth through technological advancements and market expansion.
  
• Mycronic's ongoing sustainability efforts, such as switching to renewable electricity and upgrading lasers, may improve net margins by reducing operational costs and increasing efficiency, potentially boosting the company's environmental reputation and market appeal.

Mycronic Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Mycronic's revenue will grow by 5.6% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 24.9% today to 23.4% in 3 years time.
• Analysts expect earnings to reach SEK 1.9 billion (and earnings per share of SEK 19.58) by about January 2028, up from SEK 1.7 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as SEK 1.7 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 28.2x on those 2028 earnings, up from 22.5x today. This future PE is greater than the current PE for the GB Electronic industry at 25.4x.
• Analysts expect the number of shares outstanding to grow by 0.16% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.64%, as per the Simply Wall St company report.

Mycronic Future Earnings Per Share Growth

Risks

• Order intake was flat and showed a slight decline of 1% to less than SEK 1.5 billion, indicating potential stagnation in future revenues.
  
• The Pattern Generators segment exhibits lumpiness in order intake, creating volatility and unpredictability in short-term revenue streams.
  
• High Flex division showed weakness, particularly in European markets like Germany, France, and the U.K., with a decline in both order intake and sales, potentially affecting overall revenue performance.
  
• Investment in newly acquired Vanguard Automation impacted EBIT negatively within the Global Technologies division, suggesting pressure on net margins until sales from the new business line materialize.
  
• Currency fluctuations, such as a stronger Swedish krona, present challenges by potentially eroding revenue growth in foreign markets.

Valuation

• The analysts have a consensus price target of SEK 469.5 for Mycronic 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 SEK 8.2 billion, earnings will come to SEK 1.9 billion, and it would be trading on a PE ratio of 28.2x, assuming you use a discount rate of 5.6%.
• Given the current share price of SEK 399.4, the analyst's price target of SEK 469.5 is 14.9% 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.