Detection Technology - Some more growth delays
DT’s Q2 earnings were softer than estimated and disappointingly Q3 results too are about to decline, yet fundamental demand drivers should remain strong for FY’26.
Growth will be delayed by another quarter or two
DT’s EUR 24.4m Q2 revenue was above the EUR 24.1m/23.9m Evli/cons. estimates, but sales mix was more tilted towards MBU than expected and so the EUR 1.7m EBITA missed the EUR 2.2m/2.3m Evli/cons. estimates. Another negative was the outlook, since previously growth was expected to resume in H2 while now revenue looks to decline a bit. There are three reasons why DT’s growth will be further delayed: the data center construction boom limits availability of certain components, which is an issue for MBU supply chains, while within SBU there remains a lag for new European aviation CT system installations after the EU lifted its liquid rule restrictions. Another SBU volume delay is due to the fact that certain customers are relocating production to the US. DT takes some fixed cost measures, including personnel expense savings, to protect earnings.
We estimate 10% EBITA margin for the year
We estimate Q3 revenue to decline 7% y/y as neither MBU nor SBU seems to grow, but we see Q4 flat as especially security CT systems installations should begin to normalize and pick up towards next year. Q3 will still see EBITA decline for the same reasons as in Q2 (lower revenue and less favorable sales mix), and we estimate the respective EBITA at EUR 2.6m or 10% margin. For Q4 we estimate EBITA only slightly down y/y to EUR 5.0m as sales mix should remain roughly similar. In our view DT’s FY’25 EBITA will decline by some EUR 4m to just below EUR 11m; this would represent a gain of EUR 1m relative to FY’23 (similar top line while sales mix should be slightly more favorable, in addition to which DT has found cost efficiencies).
Valuation is low assuming growth returns next year
DT’s growth has been delayed further, but FY’26 should have the ingredients for double-digit growth especially due to SBU, while MBU and IBU also have drivers in place. Our FY’26 estimates are down modestly, but we still estimate EUR 120m revenue and 15% margin for the coming years. DT’s multiples remain modest as it trades around 13x EV/EBIT on our FY’25 estimates and 7x next year. Valuation requires some patience due to the prolonged growth delay, yet upside potential is significant enough. Our new TP is EUR 11.0 (12.0) as we retain ACCUMULATE rating.