Scanfil - Realizing earnings potential

Scanfil upgraded its guidance, and although the hike wasn’t very big it was already the second time this year.

We make only small revisions for this and coming years

Scanfil upped its guidance: the new revenue and EBIT midpoints are up by 1.6% and 7.5% respectively, and so the revision wasn’t that significant in magnitude but was the second upgrade this year. Well-known incremental drivers were behind the upgrade, namely strong demand, further improvement in electronics availability and increases in production capacity. Scanfil has therefore been able to match high demand with supply. We make only small estimate revisions as our previous estimates were still within the current range. Scanfil’s FY ‘23 EBIT margin is likely to land close to 7%; in our view there isn’t any clear reason why this wouldn’t be the case also going forward. We revise our EBIT estimates up by around EUR 2m for this and coming years.

Growth to continue, EBIT margins are where they should be

We estimate Scanfil to reach a CAGR of 16% in the 3-year period of FY ’21-23; the latest year still contains some spot purchases, which are inflationary items as they don’t add margins, but underlying organic growth has remained strong to the extent that Scanfil may well reach double-digit headline growth also this year despite the nominal headwind posed by the fading spot items (Q1 growth was 21% y/y excluding them). Scanfil has done price hikes for deliveries in response to inflation, however higher volumes have driven a much more significant part of Scanfil’s recent growth. In our view the pricing dynamic may well turn deflationary soon, and as such represent a top line headwind, yet Scanfil’s growth is still most likely to be driven by higher volumes stemming from its favorably positioned customer accounts.

Some premium in valuation is warranted

Double-digit growth is unlikely to extend for very long, and while we expect 5%+ CAGR to be a realistic long-term rate we still estimate next year’s growth below such levels due to issues related to components and pricing as well as softening in demand following a period of high growth. Scanfil is valued 11.5x EV/EBIT on our FY ’23 estimates; the valuation implies some 15% premium relative to peers, a justified level (and our estimates still have upside potential) yet we continue to view valuation fair. Our new TP is EUR 11.0 (10.0); retain HOLD rating.

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