Geographic Expansion And Regulatory Changes Will Strengthen Tax-Free Shopping Solutions

Key Takeaways

• Geographic expansion and regulatory changes are expected to open new revenue streams and boost market penetration in tax-free shopping solutions.
  
• Strategic investments and financial maneuvers aim to enhance shareholder returns and improve EPS through technology advancements and share buyback initiatives.
  
• A potential luxury market slowdown and high net debt pose financial risks, compounded by rising costs and flat contribution margins in key segments.

Catalysts

Provides technology and payments solutions for merchants, acquirers, customs, authorities, travelers, shoppers, and guests in Europe, the Asia Pacific, and internationally.

• The company is experiencing strong growth in tax-free shopping solutions, particularly in Asia Pacific, driven by higher Sales-in-Store performance. This geographic expansion is expected to contribute further to revenue growth.
  
• Global Blue's high operating leverage is allowing it to translate revenue increases into even larger EBITDA gains, suggesting potential for higher future net margins as the business continues to scale.
  
• The planned expansion into new countries and regulatory changes in Japan's tax refund system are expected to open new revenue streams and enhance market penetration, impacting revenue positively in the coming years.
  
• Investment in payments technology, particularly in hospitality gateways, is expected to drive further business growth and could enhance earnings through increased service uptake and higher-margin solutions.
  
• The company's increased share buyback program and targeted leverage reduction efforts suggest a focus on improving earnings per share (EPS) and shareholder returns, which could lead to stock price appreciation.

Global Blue Group Holding Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Global Blue Group Holding's revenue will grow by 11.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.6% today to 17.3% in 3 years time.
• Analysts expect earnings to reach €110.1 million (and earnings per share of €0.46) by about December 2027, up from €44.7 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 18.9x on those 2027 earnings, down from 33.1x today. This future PE is greater than the current PE for the US Diversified Financial industry at 17.9x.
• Analysts expect the number of shares outstanding to decline by 0.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.59%, as per the Simply Wall St company report.

Global Blue Group Holding Future Earnings Per Share Growth

Risks

• The potential for a slowdown in the luxury market, which Global Blue serves significantly, could impact revenue growth despite current resilience in high-net-worth segments.
  
• Increased interest rates leading to higher finance costs could affect net margins and earnings, as noted by the rise in net finance costs and projected costs for senior debt.
  
• The shift in investments toward future growth drivers, such as new country expansions and changes in Japan's tax system, may increase fixed costs and affect short-term profitability due to €5 million in additional costs.
  
• Contribution margins in the Post-Purchase Solutions segment have declined, evidenced by a 6% drop in revenue and flat contribution growth, which could impact overall net margins if this trend continues.
  
• The company's high net debt at €516 million, despite improved leverage, could pose risks to financial health and limit flexibility if revenue growth slows or costs rise unexpectedly.

Valuation

• The analysts have a consensus price target of €6.98 for Global Blue Group Holding 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 2027, revenues will be €637.5 million, earnings will come to €110.1 million, and it would be trading on a PE ratio of 18.9x, assuming you use a discount rate of 7.6%.
• Given the current share price of €6.36, the analyst's price target of €6.98 is 8.9% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.