Cost Savings And Asian Site Launches Will Boost Efficiency

Key Takeaways

• Structural cost savings and debt reduction are set to improve financial stability and enhance future earnings.
  
• Growth in electronics and expansions in Asia and North America could drive revenue increases amidst strong customer demand.
  
• Declining demand, trade disputes, and structural changes negatively impact Elanders' revenue, margins, and overall profitability across multiple segments.

Catalysts

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

• Elanders has implemented structural cost-saving measures expected to reduce the company's annual cost base by SEK 145 million, which will likely improve net margins over time.
  
• The company's continued strong cash conversion and reduction of working capital and net debt contribute positively to its financial stability, which could enhance future earnings.
  
• Growth in the electronics segment and new site development in Asia, particularly the positive trend in Thailand, suggest potential revenue increases as customer demand in these sectors remains strong.
  
• New customer acquisitions in North America, despite current slowdowns, are expected to start contributing to sales in Q2 and Q3, potentially boosting revenues.
  
• Elanders is exploring consolidation opportunities in the print segment, particularly in the German market, which may lead to increased operational efficiency and better net margins.

Elanders Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Elanders's revenue will grow by 1.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.6% today to 3.8% in 3 years time.
• Analysts expect earnings to reach SEK 563.2 million (and earnings per share of SEK 11.06) by about May 2028, up from SEK 83.0 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 9.7x on those 2028 earnings, down from 22.8x today. This future PE is lower than the current PE for the GB Logistics industry at 23.1x.
• 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

• Declining demand across customer segments led to negative organic growth, impacting revenue and net margins.
  
• The Print & Packaging Solutions segment experienced a 6% negative organic growth, significantly affecting the adjusted EBITDA margin and potentially reducing earnings.
  
• Lower automotive volumes, especially due to reduced exports to China, continued to decrease margin in the automotive segment, affecting overall profitability.
  
• Trade disputes, particularly between the U.S. and China, create uncertainties for the Supply Chain Solutions and Fashion segment, risking future revenue streams and earnings.
  
• Structural changes, such as the system change in a major European warehouse, resulted in additional personnel costs, thereby negatively impacting the bottom line and squeezing margins.

Valuation

• The analysts have a consensus price target of SEK117.0 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 SEK84.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK14.7 billion, earnings will come to SEK563.2 million, and it would be trading on a PE ratio of 9.7x, assuming you use a discount rate of 10.0%.
• Given the current share price of SEK53.5, the analyst price target of SEK117.0 is 54.3% 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.