Advanced Satellite Deployment Will Open US And European Markets

Key Takeaways

• Expansion into Europe and the USA and stronger Swedish krona impacts suggest potential revenue growth and improved net margins.
  
• Ovzon 3's launch and demand from defense markets promise increased recurring revenue and long-term contract opportunities.
  
• Geopolitical instability and unpredictable government contracts pose revenue risks for Ovzon, compounded by foreign exchange and niche market limitations affecting growth and margins.

Catalysts

Engages in providing mobile broadband services in Sweden.

• Ovzon's strategic expansion into a well-balanced revenue base from both Europe and the USA, coupled with stronger Swedish krona impacts, suggests potential for future revenue growth and improved net margins.
  
• The launch of their proprietary satellite, Ovzon 3, and its advanced capabilities offer significant prospects for recurring revenue from high-demand markets like defense and public safety, potentially enhancing revenue and net margins.
  
• The momentum in geopolitical tensions increases demand for secure and resilient satellite communications, promising long-term contracts and sustainable revenue streams, impacting revenue positively.
  
• Successful expeditions and validation of Ovzon 3's capabilities in challenging environments like the Arctic position Ovzon as a critical provider for NATO countries, potentially boosting revenue through new contracts.
  
• Effective management of operational and investment strategies, such as cash flow from operating activities reaching an all-time high and a focus on securing long-term contracts, indicates potential growth in earnings and profitability.

Ovzon Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ovzon's revenue will grow by 23.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from -33.5% today to 26.3% in 3 years time.
• Analysts expect earnings to reach SEK 182.2 million (and earnings per share of SEK 0.95) by about May 2028, up from SEK -123.0 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 21.0x on those 2028 earnings, up from -22.3x today. This future PE is lower than the current PE for the SE Telecom industry at 28.0x.
• 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 4.76%, as per the Simply Wall St company report.

Ovzon Future Earnings Per Share Growth

Risks

• The geopolitical pressure and turmoil introduce significant uncertainty, potentially impacting Ovzon's revenue growth as long-term contracts could be delayed or canceled due to political instability.
  
• The procurement process for government contracts is often slow and unpredictable, which can lead to fluctuating quarterly revenues, affecting the company's ability to maintain steady revenue streams and predictable earnings.
  
• Ovzon's investment of approximately SEK 2.4 billion into its proprietary satellite technology poses a risk if expected returns do not materialize quickly enough to offset these significant capital expenditures, potentially affecting net margins.
  
• A large portion of Ovzon's revenue has shifted to Sweden and Europe from the U.S., introducing foreign exchange rate risks, especially if the Swedish krona weakens against the U.S. dollar, potentially impacting net earnings.
  
• While Ovzon's satellite communication solutions are highly specialized and premium-priced, this niche focus inherently limits market size, which may restrict revenue growth if geopolitical or large-scale defense budgets decline unexpectedly.

Valuation

• The analysts have a consensus price target of SEK30.0 for Ovzon 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 SEK693.4 million, earnings will come to SEK182.2 million, and it would be trading on a PE ratio of 21.0x, assuming you use a discount rate of 4.8%.
  
• Given the current share price of SEK24.6, the analyst price target of SEK30.0 is 18.0% 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.