Detection Technology - Growth potential valued low

Q3 similarly weak as Q2, but Q4 should be more stable

DT’s Q2 EBITA missed estimates as mix was unfavorably tilted to MBU rather than SBU; Q3 is unlikely to be much better since European aviation CT installations resume with a lag after the EU lifted its liquid rules. SBU fell 28% y/y in Q2, while we expect it to have stabilized a bit in Q3 but still down 15%. We estimate DT’s Q3 EBITA to have declined by ca. EUR 2m y/y to EUR 2.4m. MBU also suffers from component shortages, meaning Q3 revenue will probably fall by a high single-digit rate. In our view IBU is the only area to grow over H2, however Q4 should already be relatively stronger since SBU and MBU could reach almost flat y/y top line then. We estimate such a development would leave DT’s Q4 EBITA down by some EUR 0.5m y/y. 

SBU and MBU are poised to recover next year

DT’s FY’25 EBITA may decline some EUR 5m y/y, yet the long-term earnings growth drivers remain in place as about half of the total planned airport security investments might be completed over the next couple of years. SBU is then again positioned to grow at a double-digit rate as aviation accounts for about half of SBU sales. Meanwhile the recovery of Chinese MBU volumes may turn out to be a bit binary since local medical procurement is likely to happen in more bulk quantities. The growth outlook of MBU is therefore more uncertain than that of SBU, but we expect it to accelerate a bit next year to a high single-digit rate. IBU has delivered a relatively stable and strong performance over the past 2 years, and DT continues to develop its TFT panel capabilities by investing in software development. DT says its TFT panel sales have recently grown by some 40% y/y even when the MBU market is yet to contribute its volumes. 

Valuation doesn’t imply much growth expectations 

FY’25 has disappointed, yet the growth drivers are still there so that a CAGR of almost 10% is realistic over the next few years as MBU and SBU turn. DT is valued around 13x EV/EBIT on soft FY’25 estimates; this by itself isn’t too high, and the multiple is only slightly above 7x on our FY’26 estimates as we expect operating margin of some 14% then. Catalysts may be lacking still in H2’25, but next year should have enough upside drivers. Our new TP is EUR 10.5 (11.0) as we retain ACCUMULATE rating.