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Vaisala - Performance on track

Vaisala delivered a good Q2 result with a clear EBIT beat. The outlook for 2019 remains positive as Vaisala enters H2 which is seasonally stronger for W&E. The acquisitions of Leosphere and K-Patents are bearing fruit and we see both accelerating sales further when fully integrated into Vaisala’s sales channel. We raise our target price to 21 euros (prev. 20) but maintain HOLD recommendation.

Acquired businesses bearing fruit

Vaisala’s Q2 net sales were 96.1 MEUR vs. 94.2 MEUR our expectation (93.5 MEUR consensus). Q2 EBIT was 7.2 MEUR vs. our expectation of 3.2 MEUR (4.5 MEUR consensus). The EBIT beat was driven by slightly better sales growth and 4 percentage points higher gross margin (54% vs. 50% Q2/18) in both business units, which was a result of product and project profitability, and currency tailwind. W&E’s net sales growth was 16.7% and it came mostly from wind lidars. IM net sales growth was 26%, with K-Patents contributing around 12% of the growth. The integration of Leosphere is now complete and K-Patents is expected to be integrated during Q3, therefore sales synergies should start to become more visible during H2.

H2 seasonally stronger for W&E, estimates revised upward

After the solid Q2 result, Vaisala is on track to deliver in H2, which is seasonally stronger for W&E. Post Q2 result, we have adjusted slightly upward both our sales and EBIT estimates for this year and coming years reflecting the confidence we have in Vaisala’s strategy. We expect 2019E net sales to be 392 MEUR (12% growth yoy) and reported EBIT to be 35 MEUR (46 MEUR adjusted for PPA and one-offs), representing 9% EBIT margin (12% adj. EBIT margin). Our EBIT estimates are now in the upper end of the company’s 2019 guidance. For 2020-21E, we expect 4-5% net sales growth, and we estimate EBIT margin to gradually improve from 9% 2019E towards 11% 2021E (adjusted EBIT margin from 12% 2019E towards 13% in 2021E).

HOLD maintained with revised TP of 21 euros (prev. 20)

On our adjusted EBIT estimates, Vaisala is trading some 10-15% under our peer group on EV/EBIT multiples. Reflecting our estimates revisions, we raise our target price to 21 euros (prev. 20) but maintain HOLD recommendation.

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