Scanfil - Outlook is valued well enough

Scanfil’s Q2 top line was close to estimates while EBIT didn’t quite reach expected levels. We make only minor estimate revisions. Our rating is now HOLD (BUY).

Some softness in Q2 EBIT margin, but nothing major to flag

Q2 revenue, incl. transitory invoicing, grew 11% y/y to EUR 173m. The figure was EUR 166m excl. the component-related items and can be compared to the EUR 165m/169m Evli/cons. estimates. Automation & Safety top line remained flat while both Advanced Consumer Applications and Energy & Cleantech grew by more than 30%. Advanced Consumer Applications had account ramp-ups and high demand persisted for familiar favorably positioned customers. Energy & Cleantech performed strong even without big ramp-ups as the customers’ markets expand, and we believe Scanfil has gained share within attractive accounts like TOMRA. Component availability challenges remain, but the shortage situation didn’t have any big negative effect on Q2 performance; the situation may now be improving or at least isn’t worsening. The EUR 10.6m Q2 EBIT was a tad soft compared to the EUR 10.9m/11.1m Evli/cons. estimates. In our view the Hamburg plant closure costs explain a large part of the shortfall.

Our FY ’21 estimates remain close to the guidance midpoint

We make only very small revisions to our estimates. In our view cost inflation is not an issue for Scanfil, while component availability is for now a challenge for pretty much all EMS companies. Scanfil will host its first ever CMD in September and we wouldn’t be surprised to see an upgrade to the current organic growth target. We now see Scanfil is headed for the EUR 700m figure a year in advance. Scanfil can top the 7% EBIT margin target at least on a quarterly level, but we would view any upgrade to this target ambitious because growth in the EMS business often doesn’t scale that much in terms of relative profitability. This is one of the major factors that limit valuation.

We view current valuation picture neutral

Scanfil is now valued ca. 9x EV/EBITDA and 12x EV/EBIT on our FY ’21 estimates. We believe growth continues to drive absolute earnings up in the coming years and so the multiples should be down to around 8x and 11x already next year. The valuation represents a premium relative to peers, but in our opinion is warranted. We retain our EUR 9.0 TP; rating now HOLD (BUY).

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