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Detection Technology - Earnings and multiples should gain

DT reports Q4 results on Feb 6. We make limited estimate revisions ahead of the report as outlook remains quite stable.

The EUR 15m EBITA leaves further upside potential

DT’s Q3’24 saw double-digit growth as comparison figures were low, however Q4’24 and Q1’25 are likely to see only incremental or flat growth due to stronger comparison figures. The situation isn’t helped by the fact that MBU will still likely see slightly negative growth; its demand may soon start to improve as there are signs Chinese medical inventories have already hit their lows. The potential rebound of MBU this year could drive DT’s growth to 10% even if medical still lags security and industrial. Security may well see another year of double-digit growth as it remains driven by the airport upgrade cycle, of which only around a third has been done so far, while the Americas region has low enough comparison figures to help it grow the fastest. Industrial could also continue double-digit growth, helped by e.g. nondestructive testing applications for defense industry. We estimate DT’s Q4’24 revenue to have grown 2% y/y, while adj. EBITA may have increased only slightly to EUR 4.8m. 

 

Fundamentals are stable despite the political environment

Potential US tariffs can have a negative impact as China remains an important location for DT, however its recent investment in the Oulu manufacturing site as well as in India should help it to mitigate adversity. In our view the Trump administration policies are unlikely to cause very significant changes to the current high levels of demand seen for various security investments. The Chinese medical market is also likely to stabilize in any case. DT has probably achieved an EBITA margin of bit below 14% in FY’24, which could improve by more than 100bps in FY’25 as growth continues and product mix improves further with an even higher share of security applications. This would imply an EBITA gain of EUR 3m, and it should unfold quite evenly over the year, including also in Q1, however somewhat tilted to H2. 

 

Earnings growth and multiple expansion are upside drivers

DT is valued below 14x EV/EBIT on our FY’24 estimates, which is already clearly below peer multiples and continues to decrease further to below 11x in FY’25 as the company may hit its profitability target. Our new TP is EUR 17.0 (19.0) as our rating is BUY according to the updated rating methodology (see p. 3).

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