Opening Of US Medical Plant And Aerospace Center Will Expand Market Reach

Key Takeaways

• Materialise's focus on mass personalization in the Medical segment and integration of FEops aims to drive long-term revenue growth despite short-term EBIT impact.
  
• Shifting the Software segment to a cloud model and strategic manufacturing expansions are expected to enhance revenue stability and margins.
  
• Acquisition challenges and macroeconomic conditions in Europe hinder short-term financial results, while subscription-model shift and operational costs raise concerns over revenue and net margins.

Catalysts

Provides additive manufacturing and medical software, and 3D printing services in the Americas, Europe and Africa, and the Asia-Pacific.

• Materialise is expanding its Medical segment with a focus on mass personalization, including the opening of a U.S. plant and increased automation to reduce lead times, which is expected to drive revenue growth by tapping into larger patient markets.
  
• The acquisition and integration of FEops are expected to enhance the Medical segment's offerings, specifically in the cardiovascular market. This strategic move aims to boost future revenue despite the short-term negative impact on EBIT.
  
• The transition of the Software segment to a cloud and subscription-based model is poised to increase recurring revenue, enhancing revenue stability and potential margin improvement over the long term.
  
• Growth opportunities in the Manufacturing segment, especially in aerospace, where Materialise is generating significant revenue growth, are expected to positively impact overall company revenue. This focus is supported by their newly opened aerospace competence center.
  
• Cost control and optimization measures in the Manufacturing segment, along with past investments in infrastructure like the ACTech plant, are likely to lead to improved net margins as operational efficiencies are realized in 2025.

Materialise Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Materialise's revenue will grow by 6.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.0% today to 6.0% in 3 years time.
• Analysts expect earnings to reach €19.1 million (and earnings per share of €0.32) by about April 2028, up from €13.4 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 35.4x on those 2028 earnings, up from 17.8x today. This future PE is greater than the current PE for the US Software industry at 29.6x.
• 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 9.01%, as per the Simply Wall St company report.

Materialise Future Earnings Per Share Growth

Risks

• Materialise's EBIT was negatively impacted by the acquisition of FEops, impacting short-term financial results. This suggests potential risks in earnings from integration challenges.
  
• The Manufacturing segment faced a 13% decrease in revenue due to weak demand and unfavorable macroeconomic conditions in Europe, potentially indicating challenges to future revenue stability.
  
• The company reported increased operational costs due to ACTech plant startup and restructuring, leading to a lower EBITDA margin and negative EBIT, raising concerns over net margins in the short term.
  
• Materialise's transition to a subscription-based revenue model in Software, while designed to increase recurring revenue, could initially suppress revenue recognition, thereby impacting short-term revenue growth.
  
• Uncertain macroeconomic conditions in Europe, particularly affecting the Manufacturing segment, likely indicate ongoing risks to revenue stability, which could challenge the company’s overall financial performance in 2025.

Valuation

• The analysts have a consensus price target of $10.099 for Materialise 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 $12.0, and the most bearish reporting a price target of just $8.2.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €320.0 million, earnings will come to €19.1 million, and it would be trading on a PE ratio of 35.4x, assuming you use a discount rate of 9.0%.
• Given the current share price of $4.63, the analyst price target of $10.1 is 54.2% 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.