Acquisitions And Investments Will Expand Europe's Automation And Digital Distribution

Key Takeaways

• Acquisitions and strong organic sales in automation and electronics are driving revenue growth and enhancing Boreo's position in key digitalization and industrial trends.
  
• Improved balance sheet and strategic investments enable increased M&A activity and margin expansion, supporting long-term earnings resilience and higher operational profitability.
  
• Weak demand, rising costs, heavy reliance on acquisitions, and macroeconomic uncertainties threaten profitability, cash flow, and long-term earnings stability.

Catalysts

Together with its subsidiairies, owns, acquires, and develops small and medium sized companies in Finland, Sweden, Baltic Countries, and internationally.

• Recent and future acquisitions (Spetselektroodi, Elfa Distrelec) are expanding Boreo's footprint in automation and electronics distribution-key areas benefiting from the broadening adoption of advanced digital and industrial technologies in Europe-supporting higher revenue growth and future operational leverage as integration progresses.
  
• Strong organic sales growth (17% in Q2) and improving order books, especially in industrial and automation-related businesses, position Boreo to capitalize on increasing demand for electronic components and automation solutions, likely driving further topline growth and more stable, resilient earnings streams.
  
• Improved balance sheet and enhanced liquidity following the issuance of the convertible hybrid bond (lower leverage and financing costs) give Boreo additional capacity to pursue value-accretive M&A and invest in value-added services, which should support margin expansion and long-term earnings improvement.
  
• Strategic investments in personnel, systems, and technical capabilities within segments aligned to trends such as industrial digitalization, energy efficiency, and supply chain resilience allow Boreo to capture higher-margin business and strengthen its competitive position, supporting net margin and recurring revenue growth.
  
• Operating leverage and margin improvement potential remain significant, with several portfolio businesses still trading below historical profitability; as sector recovery continues (particularly in construction and industrial markets), Boreo is likely to see outsized gains in operational profit and return on capital employed.

Boreo Oyj Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Boreo Oyj's revenue will grow by 7.3% 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 €5.5 million (and earnings per share of €1.53) by about August 2028, up from €1.6 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 8.6x on those 2028 earnings, down from 26.5x today. This future PE is lower than the current PE for the GB Electronic industry at 22.7x.
• Analysts expect the number of shares outstanding to grow by 0.09% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.47%, as per the Simply Wall St company report.

Boreo Oyj Future Earnings Per Share Growth

Risks

• Ongoing market weakness and uncertainty in key segments like electronics and the Baltic region, where demand has been soft and customer investments are being postponed, could limit Boreo Oyj's organic revenue growth and delay recovery of earnings in critical markets.
  
• Rising fixed costs due to increased recruitments, management bonuses, and OpEx/investments in systems and business development-amid only modest improvements in operating leverage-may continue to dilute net margins and reduce overall profitability if revenue growth does not accelerate.
  
• The company's reliance on acquisitions for expansion, including recent deals and a stated strategy to remain "acquisitive," brings integration and execution risks; unsuccessful integrations or overpaying for targets could lead to earnings volatility and strain on return on capital employed.
  
• Increased working capital demands and negative operational cash flow this quarter, mainly due to rising receivables from higher sales, reveal potential challenges in cash conversion and liquidity management-issues which, if persistent, could hinder Boreo's capacity to fund investments or weather industry downturns.
  
• External macroeconomic uncertainties-including general global instability, muted construction market activity (especially in Finland), and the ongoing need to adapt to tariffs, inflation, and interest rate fluctuations-pose risks to Boreo's revenue stability and emphasize vulnerability in long-term earnings growth.

Valuation

• The analysts have a consensus price target of €18.0 for Boreo Oyj 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 €175.2 million, earnings will come to €5.5 million, and it would be trading on a PE ratio of 8.6x, assuming you use a discount rate of 9.5%.
• Given the current share price of €16.15, the analyst price target of €18.0 is 10.3% 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.