Detection Technology - Stable demand, unstable tariffs
DT reports Q1 results on Apr 24. We make minor revisions at this point as the trade war’s eventual outcome remains open.
We make only small downward revisions to our estimates
DT’s Q1 may be muted as airport construction delays limit SBU volumes. Underlying margins should remain decent, yet the comparison period had a more favorable product mix and certain one-offs. We estimate flat Q1 revenue at EUR 22.6m while expecting EBITA to have declined a bit to EUR 2.1m. We believe MBU will return to significant growth this year, however the trade war doesn’t help the more investment-driven SBU and IBU volumes. Direct sales to Americas amounted to 6% of last year’s revenue, however that figure understates the importance of the US for DT as its customer OEMs’ products have been an important driver of recent growth in SBU and IBU.
The trade war causes at least some short-term uncertainty
The tariffs create uncertainty especially around SBU, which already saw some delays due to the scheduling of airport projects. FY’25 outlook was still quite unchanged before the latest rounds of announcements; DT has sites also in Finland and India, but the latter is only ramping up while the former was planned to produce no more than 10% of sales. In our view DT’s footprint quite well reflects that of all the relevant supply chains. Tariffs on Chinese manufacturing in the hundreds of percentage points would thus necessitate dramatic changes in the whole supply chain. We believe there will eventually be a compromise since many security upgrade investments still need to be done also in the US, while the role of China can’t be replaced in the foreseeable future and the US currently has no detector manufacturing. We gather tariffs of e.g. around 10-20% wouldn’t still be a very big issue for DT.
Low multiples but uncertainty limits upside potential for now
We expect MBU to add most growth in absolute terms this year, while IBU could remain the fastest grower relatively speaking. We still see high single-digit growth for the year; in our view DT could continue to grow at a double-digit rate in a reasonable scenario, yet the whirlwind politics still pose some negative estimate risks. DT is valued 10x EV/EBIT on our FY’25 estimates, a peer discount of 40%. The multiple further declines to 8x next year assuming SBU again drives growth. Our TP is now EUR 14.0 (17.0), and our rating ACCUMULATE (BUY) as the current regime limits upside potential.