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Vaisala - A champion with a hefty price tag

Vaisala’s R&D leadership focused strategy and bolt-on acquisitions have paid off well during the last years. Dark clouds are currently hanging over W&E, but thanks to its strong financial position, and growing share of more profitable IM sales, we see Vaisala on track to targeted above 5% growth and above 12% EBIT margins. However, we continue seeing Vaisala’s valuation too expensive given the expected financial performance. We maintain our target price of 32€ and our SELL recommendation.

Maneuvering pass a challenging 2020

Vaisala has managed to maneuver pass the corona pandemic rather unscathed. Due to lowered operating expenses caused by the pandemic and good order book & deliveries, performance has been good in both BU’s. Currently, W&E is weighed down by the weakened outlook for aviation and lack of larger infra projects, especially in developed countries. IM on the other hand, is expected to be less affected by COVID going forward.

 Profitable growth with R&D leadership strategy

Looking at the coming years, we see Vaisala’s targeted above 5% sales growth and >12% margins achievable despite current gloomy outlook for aviation. We expect the growing share of more profitable IM sales to continue supporting Vaisala’s growth and operating margin. In 2021E-22E, we estimate Vaisala’ net sales to grow by 4.5% and 5.3%, and EBIT margins of 12.2% and 12.6% respectively. We expect W&E market to begin to gradually recover in 2021E-22E with an annual growth rate of approximately 3% and W&E’s EBIT margins to gradually improve towards 7% in 2022E. For IM, we expect 2021E-22E continued profitable growth at 7% and 9.6% annual growth rates, respectively. We expect IM’s EBIT margins to stay above 20% in 2021-22E.

 Maintain SELL as valuation is expensive

Vaisala’s share price has rallied in last few years and is currently around all time high levels. The share price rally is also visible in Vaisala’s valuation multiples, which have increased strongly since around mid-2019, resulting in a clear sustained valuation premium of 20-60% during this period. As peer group multiples have rerated as of late, Vaisala’s EV/EBIT and P/E valuation premium is now around 20-30% on our 2021-22E estimates. Despite recent surge in valuation multiples, we see valuation too expensive given Vaisala’s weaker growth rates and margins compared to our technology peer group. Thus, we maintain our target price of 32€ and our SELL recommendation. Our target price values Vaisala at 21-22e EV/EBIT multiples of 23x and 21x which is above peer group, reflecting Vaisala’s strong sustainability profile, growing dividend, and especially IM’s highly profitable growth with possibility of further add-on acquisitions.

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