Scanfil - Steeper earnings accretion ahead

Scanfil’s Q4 report didn’t provide any big surprises as figures were slightly above estimates, while the guidance and long-term targets were pretty much as expected.

High growth due to volumes and component inflation

The EUR 192m Q4 revenue, up 24.5% y/y, topped the EUR 183m/185m Evli/cons. estimates by a fair margin. The EUR 14.4m in spot purchases were spread even between the five segments, relative to their sizes. Energy & Cleantech grew the most also in Q4. It was known before that Q4 would fall short of Scanfil’s EBIT potential as component issues and infections limited productivity, but the EUR 10.2m adj. EBIT was a bit above the EUR 9.7m/9.6m Evli/cons. estimates. The Q4 issues are by their nature temporary; in our view Scanfil’s guidance and comments suggest the situation is improving, or at least has stabilized.

Performance is set to improve this year and beyond

All the segments grew last year. We expect Energy & Cleantech to contribute most growth this year as the segment benefits from many megatrends and includes customers such as TOMRA. Inventories grew EUR 90m last year due to high demand but also in response to the component challenges. Scanfil suggests spot purchases may be lower again in H2’22; we estimate margin improvement throughout the year. Scanfil mentioned possible expansion in Asia beyond China, and this would be likely in countries such as India, Vietnam, and Malaysia. In our view such an expansion would be more likely through M&A than greenfield. Scanfil has recently announced expansions to its plants in the US and Germany, and hence capex will be a bit above 2% of revenue this year. An expansion to the Suzhou plant might also follow.

Multiples have declined, favorable outlook is much intact

We make only marginal estimate revisions. Scanfil is valued 6.0-7.5x EV/EBITDA and 8.0-9.5x EV/EBIT on our FY ’22-23 estimates. In our view the medium to long-term demand and earnings outlook hasn’t changed much in the past 3-6 months, while valuation has declined by 15-20% (peer valuations have declined by roughly similar percentages). Scanfil’s multiples are now well in line with peers, but in our view a premium can be justified by the fact that Scanfil’s EBIT outlook remains somewhat higher than that of a typical peer. We revise our TP to EUR 8 (9) as the sector’s valuations have declined, but our rating remains BUY.

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