Detection Technology - Expecting to fire on both cylinders in Q1

Security market expected to pick up again

DT said in their Q418 result that they saw signs of security market picking up again and overall the beginning of the year is expected to be strong in all markets. Consequently, DT expects double digit sales growth in the first half, but second half is however more uncertain, with of one of MBU’s major customers ramping down manufacturing of a certain device. We expect both BU’s to perform well in Q1, with SBU growing 15% and MBU 17% yoy. We expect Q1 net sales to be 22.3 MEUR (19.3 MEUR Q118) and Q1 EBIT to be 4.1 MEUR (3.7 MEUR Q118). Consensus is expecting Q1 net sales of 22.6 MEUR and EBIT of 4.0 MEUR.

Varex acquiring Direct Conversion AB for 75 MEUR

DT’s peer company, Varex Imaging, recently announced its intent to acquire 90% of Direct Conversion AB for a price of 75 MEUR for the whole company. The Swedish company had net sales of 16 MEUR in 2018, which means a 4.7x EV/Sales deal multiple. This further proves the potential seen in direct conversion and photon counting, an area which DT is also investing in with its asset purchase deal of the French MultiX.

BUY rating and TP of 19 euros maintained ahead of Q1

For 2019E, we expect DT’s net sales to grow 7.5% to EUR 100.9m driven by SBU’s return to growth of 11.5% on slightly weaker comparables. We expect 2019E MBU net sales growth to be flat due to the ramp-down of key customer’s product in H2. We estimate 2019E EBIT to be EUR 18.9m (19.1m 2018) and EBIT margin to decrease to 18.8% from 19.7% level of 2018 due to higher R&D costs (30% higher vs. 2018). Our rating “BUY” and TP EUR 19.0, remain unchanged ahead of Q1.