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Detection Technology - Expect return to growth

Detection technology will report is Q2 results on August 3rd. Q1 started off rather slow and expectations are for growth to pick up in the coming quarters. We expect the trend of net sales decline to be reversed in Q2 and sales to grow 12.8% y/y. We retain our target price of EUR 30.0 and HOLD-rating.

Q1 started off rather slow
Detection Technology will report its Q2 results next Tuesday on August 3rd. In Q1 net sales in MBU and IBU saw double-digit growth y/y while SBU saw net sales decline with the continued challenging situation in the security market. MBU showed good momentum in sales growth driven by investments in healthcare infrastructure and increased demand for CT applications. Group net sales overall declined 8.0% y/y. Relative profitability increased y/y to a 7.5% operating margin (Q1/20: 5.9%) but remained clearly below pre-COVID levels.

Growth seen to pick up in coming quarters
Detection Technology noted in Q1 that although the beginning of the year was slow, the worst challenges are seen to have been left behind and growth is expected to pick up again during 2021. MBU is seen to grow more in Q2 and H2 than in Q1 while IBU should turn to growth during H2. SBU is seen to head for growth in late Q2 and grow in H2 but demand is characterized by uncertainty. We estimate group net sales of EUR 23.8m for a growth of 12.8% y/y. We expect growth to be driven by MBU (35.4% y/y) and a clearly smaller y/y growth decline in SBU (-10.1% y/y). We expect group operating margins to remain quite on par with previous year levels.

HOLD with a target price of EUR 30.0
We have made no changes to our estimates ahead of Q2. Valuation is quite elevated, with 2022E P/E of ~36x, and growth recovery is still coupled with uncertainty. Potential is however still large, with good market growth expectations. We retain our HOLD-rating with a target price of EUR 30.0.

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