Aalberts N.V., a leading company in the valves and pipes sector, has set ambitious growth plans for the future. With a return on capital employed (ROCE) ranging between 18-20%, the company aims to deploy its growth capital effectively. As a result, they anticipate a significant increase of 30% in EBITA (earnings before interest, taxes, and amortization) by 2026.

Based on a required free cash flow yield of 7%, analysts project a fair value of 55 EUR per share for Aalberts N.V. by 2026. This indicates potential growth for investors who are interested in the market.

Looking back, Aalberts N.V. faced a challenging period during the peak of the COVID-19 crisis in 2020. The share price dropped to less than 21 EUR, representing a 50% decline in just six weeks and a six-year low. However, the subsequent recovery and the company’s resilient performance since then demonstrate the market’s confidence in Aalberts.

In terms of financial results, Aalberts N.V. reported a revenue increase of nearly 10% to 3.23B EUR in FY 2022. Although there was no substantial improvement in net income, the operating profit showed positive growth. While total operating expenses rose by around 200M EUR, the lack of “other net income” limited the increase in operating profit.

It’s important to note that non-recurring items, such as gains from division sales, influenced the operating income in FY 2021. Excluding these non-recurring elements, the adjusted operating profit in FY 2021 would have been similar to that in FY 2022.

The reported net income for FY 2022 was 322.3M EUR, of which 317.3M EUR was attributable to Aalberts’ shareholders. However, a portion of the net income consisted of non-recurring items. The earnings per share (EPS) for FY 2022 were approximately 2.87 EUR, resulting in a price-to-earnings (P/E) ratio of around 13.

Analyzing the cash flow statement, the operating cash flow does not include the gain from asset sales. The underlying operating cash flow, after considering working capital and tax obligations, amounted to approximately 478M EUR. After adjusting for lease payments, the adjusted operating cash flow was 441M EUR. Furthermore, the company invested approximately 202M EUR in capital expenditures (excluding acquisitions) and intangibles.

Considering these figures, the free cash flow for FY 2022, excluding the impact of asset dispositions, was about 239M EUR. This takes into account a total capex and lease payments of 239M EUR and a total depreciation expense of 188M EUR. It indicates that Aalberts N.V. continues to invest in growth opportunities.

Aalberts N.V. has set long-term targets to achieve a return on capital employed (ROCE) of over 18% on its investments. By projecting a 4% annual revenue growth from the 2021 revenue base of 3.23B EUR, the company aims to reach a revenue of 3.75B EUR in FY 2026. Additionally, they anticipate a 17% EBITA margin, resulting in a total EBITA of 642M EUR, which is approximately 30% higher than the FY 2022 EBITA of 500M EUR. This projected growth could add around 1-1.10 EUR per share to the earnings profile.

Although Aalberts N.V.’s current stock price does not appear cheap, trading at a free cash flow yield of 5% (including growth investments), the market seems optimistic about the company’s 2022-2026 plans. Projecting a required free cash flow yield of 7%, the fair share price is estimated to be around 55 EUR per share by 2026. To achieve this, the share price would need to increase by an average of 13% annually. Additionally, with a 3% dividend yield, investors could potentially realize a total annual return of 15%.