Detection Technology - Valuation turns expensive
DT reports its Q4 result on February 2nd. Despite supply chain issues affecting especially MBU’s Q4 growth, we expect DT to deliver double-digit growth in Q4. However, a recent rally in stock price has turned DT’s valuation quite elevated. We downgrade our rating to SELL (HOLD) and adjust TP to 16.0 (16.5).
Supply chain issues to cut MBU’s growth in Q4
In its pre-silent call, DT’s management indicated that additional supply chain issues have caused some challenges to MBU’s deliveries. To our understanding, these challenges concern especially China, in which DT holds a strong position in medical solutions. Such issues are expected to have a significant impact on MBU’s growth prospects and thus we have revised our Q4 MBU topline estimates downwards. We now expect MBU’s Q4 net sales to decrease by 0.4% y/y to EUR 13.5m. We expect the situation not to limit in Q4’22 and MBU’s growth to see some softness also in Q1’23.
SBU and IBU to perform well
We don’t expect MBU’s situation to reflect in the performance of SBU and IBU since MBU operates mainly with a separate supply chain. In addition, the underlying demand for security solutions is currently high. In Q4, we expect SBU to grow by 26.4% to EUR 9.8m and IBU to increase by 20.2% to EUR 4.1m. In our view, SBU’s growth is largely supported by increased investments in aviation. Moreover, we see IBU facing solid momentum that results in recently won customers despite uncertain macroeconomic trends. In total, DT’s Q4 revenue will face a 10.9% y/y growth, amounting to EUR 27.4m (prev. 28.7m).
SELL with a target price of EUR 16.0 (16.5)
Continued spot-component purchases deteriorate DT’s profitability to some extent, despite the company being able to transfer some of the increased material costs to customer prices. We expect Q4 EBIT to amount to 2.5m (prev. 2.8m), reflecting a 9.2% margin. The company also faces cost pressures originating from fixed costs. With our revised estimates and recent rally in stock price, DT’s valuation turns expensive. We downgrade our rating to SELL (HOLD) and adjust TP to EUR 16.0 (16.5) ahead of the Q4 result.
In its pre-silent call, DT’s management indicated that additional supply chain issues have caused some challenges to MBU’s deliveries. To our understanding, these challenges concern especially China, in which DT holds a strong position in medical solutions. Such issues are expected to have a significant impact on MBU’s growth prospects and thus we have revised our Q4 MBU topline estimates downwards. We now expect MBU’s Q4 net sales to decrease by 0.4% y/y to EUR 13.5m. We expect the situation not to limit in Q4’22 and MBU’s growth to see some softness also in Q1’23.
SBU and IBU to perform well
We don’t expect MBU’s situation to reflect in the performance of SBU and IBU since MBU operates mainly with a separate supply chain. In addition, the underlying demand for security solutions is currently high. In Q4, we expect SBU to grow by 26.4% to EUR 9.8m and IBU to increase by 20.2% to EUR 4.1m. In our view, SBU’s growth is largely supported by increased investments in aviation. Moreover, we see IBU facing solid momentum that results in recently won customers despite uncertain macroeconomic trends. In total, DT’s Q4 revenue will face a 10.9% y/y growth, amounting to EUR 27.4m (prev. 28.7m).
SELL with a target price of EUR 16.0 (16.5)
Continued spot-component purchases deteriorate DT’s profitability to some extent, despite the company being able to transfer some of the increased material costs to customer prices. We expect Q4 EBIT to amount to 2.5m (prev. 2.8m), reflecting a 9.2% margin. The company also faces cost pressures originating from fixed costs. With our revised estimates and recent rally in stock price, DT’s valuation turns expensive. We downgrade our rating to SELL (HOLD) and adjust TP to EUR 16.0 (16.5) ahead of the Q4 result.