Vaisala - Strong performance continues
Vaisala delivered a strong Q3 on all fronts but surprisingly kept their guidance intact despite strong YTD performance and good momentum in both W&E and IM. We’ve updated our estimates for the coming years due to better overall growth profile and increasing profitability driven by IM’s continuing good performance. On the back of our raised estimates, we raise our target price to 24.5 euros (prev. 21) and maintain our HOLD recommendation.
Strong quarter on all fronts, with contribution from W&E
On the back of a good Q2 report, Vaisala delivered an even better Q3, which clearly beat expectations. Orders received increased +37% y/y (+20% organic) to 105.1m (vs. 76.8m Q3’18), with orders received as well as sales growth coming from both business areas and all geographies. Order intake for W&E was +45% (+27% organic), with mostly mid-sized orders, a positive signal. Q3 net sales grew +25% to 105.2m (vs. 100.4m Evli / 99.7m cons.). With the help of strong sales growth (W&E +27%, IM +22%), EBIT was 16.3m (vs. 11m Evli/13m cons), an 15.5% EBIT margin. IM posted good figures, with +22.4% growth (9% organic), an all-time high quarter, and solid 23.6% EBIT margin (24.7% adj. margin). Biggest positive contribution was W&E with +27% (+14% organic) sales growth, and EBIT margin of 13.5% (16% adj. margin).
Outlook unchanged despite strong performance so far
Despite the beat and good figures YTD, Vaisala repeated its FY’19 guidance: sales between 380–400m, EBIT between 25–35m including 10–12m PPA amortization and one-offs. Our pre-Q3 estimates were already in the upper end of the guidance, and now with the result beat we have raised our FY’19E estimates slightly above the guidance. We also increase by ~2% our estimates for 2020E-21E due to better growth profile in both business areas. With the acquired businesses integrated into Vaisala’s sales channel and continued good organic momentum in both W&E and IM, we see targeted 5% sales growth clearly achievable. We estimate that IM share of Vaisala’s EBIT in ‘19E and ‘20E will be around 65-67% (vs. 56-57% in ’17-’18), resulting in ~13-17% EBIT growth and EBIT margins of 10-11% (12-13% adj. for PPA).
Valuation becoming stretched
Vaisala’s share har rallied +70% YTD and +30% since Q2 the report, being now at an all-time high. On our raised estimates, Vaisala is trading at adj. EV/EBIT multiples of 20x and 18.5x for ‘19E and ‘20E, a 20-26% premium to our peer group despite exhibiting a lower growth and profitability profile than our peer group. However, a high valuation and premium are in our view justified due to the stable outlook for W&E and especially IM’s highly profitable growth with possibility of further add-on acquisitions. On the back of our raised estimates, we raise our target price to 24.5 euros (prev. 21) and maintain our HOLD recommendation.