Factory Expansion And German Acquisition Will Expand Global Presence

Key Takeaways

• Expanding factory operations outside China positions NCAB to capitalize on U.S. tariff shifts, potentially boosting North American revenues and market share.
  
• Strategic acquisitions and a solid M&A pipeline could significantly enhance NCAB's European presence and long-term earnings growth.
  
• Reliance on partner factories and M&A strategy introduces supply chain and integration risks, while tariffs and forex volatility threaten financial performance and investor confidence.

Catalysts

Engages in the manufacture and sale of printed circuit boards (PCBs) in Sweden, Nordic region, rest of Europe, North America, and Asia.

• NCAB Group's investment in building a factory base outside of China is a strategic advantage as U.S. customers may shift their sourcing to avoid tariffs. This shift could bolster revenue and expand market share in North America, improving overall sales growth.
  
• The acquisition of B&B Leiterplattenservice strengthens NCAB's presence in the industrial and energy sectors in Germany, which could lead to higher sales and earnings in Europe as they integrate new customer segments and technical capabilities.
  
• NCAB's active M&A pipeline and financial flexibility to execute acquisitions without dividend payouts suggest a focus on expanding market presence and capabilities, which could drive revenue growth and enhance earnings over the long term.
  
• Positive order intake trends, particularly in North America and certain European markets, indicate recovery and potential revenue growth in these regions, despite market uncertainties, which may enhance future earnings.
  
• Developing opportunities in high-tech and high-margin applications, particularly in the East region, could stabilize or improve gross margins as NCAB continues to provide specialized services.

NCAB Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming NCAB Group's revenue will grow by 11.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.0% today to 10.7% in 3 years time.
• Analysts expect earnings to reach SEK 536.2 million (and earnings per share of SEK 2.44) by about May 2028, up from SEK 217.2 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.3x on those 2028 earnings, down from 36.6x today. This future PE is lower than the current PE for the SE Electronic industry at 26.0x.
• 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 6.19%, as per the Simply Wall St company report.

NCAB Group Future Earnings Per Share Growth

Risks

• The company's reliance on external partner factories, without in-house manufacturing, may lead to complexities in supply chain management, impacting its ability to maintain revenue growth and stable net margins.
  
• Fluctuations in foreign exchange rates have already negatively affected gross margins and EBITA, and continued volatility could further impact future earnings adversely.
  
• High tariffs on products shipped to the U.S. could lead to increased costs for customers, possibly reducing demand and affecting U.S. revenues despite strategies to mitigate this by sourcing outside China.
  
• The decision not to pay a dividend due to market uncertainties about tariffs suggests potential caution in financial flexibility, impacting investor confidence and perceived stability of future earnings.
  
• Although the company is pursuing M&A activity as a growth strategy, reliance on acquisitions to support revenue and market share could introduce integration risks and not always guarantee a positive impact on net margins.

Valuation

• The analysts have a consensus price target of SEK61.0 for NCAB 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 SEK69.0, and the most bearish reporting a price target of just SEK51.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK5.0 billion, earnings will come to SEK536.2 million, and it would be trading on a PE ratio of 25.3x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of SEK42.52, the analyst price target of SEK61.0 is 30.3% 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.