Vaisala - Margin expansion to be seen in H2
Vaisala delivered strong topline and solid order growth in Q1. Despite soft Q1 EBIT, we foresee the profitability improving towards year-end. We retain BUY rating and TP of EUR 44.0.
Delivered growth beyond expectations
Vaisala delivered strong Q1 growth both in orders and net sales. Group net sales grew by 11% y/y to EUR 131.8m. EBIT came in slightly soft at EUR 13.3m (10.1% margin). Growth was driven by each IM’s main segments while W&E performed well in continuing services, i.e., road weather and automotive, as well as in renewable energy. EBIT was impacted by flat gross margin and significantly increased fixed costs, which were driven by investments in sales, marketing, R&D and IT-systems. Vaisala’s strategic area of X-Weather posted strong double-digit growth. In our view, X-Weather has a significant potential to drive W&E's EBIT margin expansion due to its scalable business model. However, the margin impact may take a few years as we currently estimate X-Weather being yet unprofitable due to strong investments in growth.
EBIT should improve towards year-end
During 2022-23, according to its strategy, Vaisala has allocated capital in internal capabilities to ensure growth for the company’s future. Such investments have however been more extensive than we previously expected, which is seen in Q1 EBIT coming in below our expectations. Since the majority of the increased fixed costs are expected to be permanent, scalability is likely to kick in more extensively by 2024. Although Q1 EBIT was a bit soft, the company reiterating its guidance for 2023 indicates improving margins towards the year-end. Moreover, Vaisala’s target is to reach an EBIT margin of 15% by the end of 2025, which we foresee achievable, although expect further evidence on scale.
Still some room for an upside
With our estimates relatively intact, Vaisala continues to trade below its peers. In our view, the company should be priced at least in line with its peer group, considering its presence in defensively growing markets, technology leadership and EBIT improvement. We retain our BUY rating and TP of EUR 44.0.
Vaisala delivered strong Q1 growth both in orders and net sales. Group net sales grew by 11% y/y to EUR 131.8m. EBIT came in slightly soft at EUR 13.3m (10.1% margin). Growth was driven by each IM’s main segments while W&E performed well in continuing services, i.e., road weather and automotive, as well as in renewable energy. EBIT was impacted by flat gross margin and significantly increased fixed costs, which were driven by investments in sales, marketing, R&D and IT-systems. Vaisala’s strategic area of X-Weather posted strong double-digit growth. In our view, X-Weather has a significant potential to drive W&E's EBIT margin expansion due to its scalable business model. However, the margin impact may take a few years as we currently estimate X-Weather being yet unprofitable due to strong investments in growth.
EBIT should improve towards year-end
During 2022-23, according to its strategy, Vaisala has allocated capital in internal capabilities to ensure growth for the company’s future. Such investments have however been more extensive than we previously expected, which is seen in Q1 EBIT coming in below our expectations. Since the majority of the increased fixed costs are expected to be permanent, scalability is likely to kick in more extensively by 2024. Although Q1 EBIT was a bit soft, the company reiterating its guidance for 2023 indicates improving margins towards the year-end. Moreover, Vaisala’s target is to reach an EBIT margin of 15% by the end of 2025, which we foresee achievable, although expect further evidence on scale.
Still some room for an upside
With our estimates relatively intact, Vaisala continues to trade below its peers. In our view, the company should be priced at least in line with its peer group, considering its presence in defensively growing markets, technology leadership and EBIT improvement. We retain our BUY rating and TP of EUR 44.0.