Restructuring And Digital Solutions Will Drive Future Success Starting 2025

Key Takeaways

• Restructuring efforts and market exits aim to enhance margins by reducing costs and focusing on profitable areas.
  
• Transition to digital solutions and expansion into North America and Thailand could boost revenue growth and operational reach.
  
• Elanders faces revenue and margin challenges due to declining growth in automotive, fashion, and packaging segments, with uncertainty in future demand impacting stability.

Catalysts

A logistics company, provides supply chain and print and packaging solutions in Sweden, Germany, the United States, Singapore, the United kingdom, the Netherlands, China, Switzerland, Poland, Hungary, and internationally.

• Elanders has carried out restructuring measures, including cost reduction and exiting low-margin markets like the road transportation business in Germany, expected to generate SEK 50 million in annual savings starting in 2025, likely improving net margins.
  
• The company is experiencing a positive trend in demand from multiple customer segments and a strong influx of new fashion customers in North America, potentially increasing future revenues.
  
• Elanders' transition from traditional print production to digital solutions, such as online print, publishing, and packaging, opens opportunities for growth, which can positively impact revenues and margins.
  
• The establishment of a new facility in Thailand is projected to contribute positively to earnings in 2025, expanding operational capabilities and geographical reach.
  
• The recovery from North American fashion clients due to changes in trade policies in Mexico may lead to increased demand, which could drive revenue growth in the medium term.

Elanders Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Elanders's revenue will grow by 2.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.2% today to 3.1% in 3 years time.
• Analysts expect earnings to reach SEK 468.0 million (and earnings per share of SEK 13.17) by about March 2028, up from SEK 176.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.7x on those 2028 earnings, down from 15.1x today. This future PE is lower than the current PE for the GB Logistics industry at 15.2x.
• 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 9.96%, as per the Simply Wall St company report.

Elanders Future Earnings Per Share Growth

Risks

• The Automotive segment is experiencing negative growth due to major structural changes, which has impacted organic growth and adjusted EBITA margins negatively. This could affect Elanders' revenue and profit margins if these issues persist.
  
• There is continued soft demand from Elanders' Fashion customers in North America, leading to negative organic growth. This softness might negatively impact Elanders’ future revenues and net margins.
  
• The slowdown in organic growth for the Supply Chain Solutions segment to 1% from 5.2% is largely due to the automotive industry issues, which could impact future revenue growth and profitability.
  
• Negative growth of 5% in the Print & Packaging Solutions segment, driven by a 28% decline in the Automotive print business, indicates potential ongoing risks to revenue from this segment.
  
• Uncertainty in automotive demand makes it hard to predict future outcomes, posing risks to future revenue stability and Elanders' ability to maintain its current financial performance.

Valuation

• The analysts have a consensus price target of SEK127.667 for Elanders 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 SEK145.0, and the most bearish reporting a price target of just SEK106.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK15.3 billion, earnings will come to SEK468.0 million, and it would be trading on a PE ratio of 12.7x, assuming you use a discount rate of 10.0%.
• Given the current share price of SEK75.3, the analyst price target of SEK127.67 is 41.0% 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.