Detection Technology - Volumes grow, mix unfavorable
DT’s Q1 results were soft relative to estimates and earnings may not grow over the next two quarters, but valuation is low especially if SBU starts to grow again later this year.
Earnings growth may not materialize before Q4’25
DT’s EUR 22.2m Q1 revenue was slightly soft relative to the EUR 22.6m/22.7m Evli/cons. estimates due to FX fluctuations in March but also because of delayed airport security installations in Europe, where the EU has reinstated the 100ml liquid container limit for cabins to work out an issue with the new generation of scanners. SBU thus declined 20% y/y, yet MBU showed significant growth for the first time in a long while and IBU also continued to grow a bit. The EUR 1.4m EBITA was a disappointment, vs the EUR 2.1m/2.3m Evli/cons. estimates, even if some softening was to be expected as the comparison figure was quite high due to a more favorable mix and certain other items. The FX changes continue to weigh top line especially in Q2, while SBU is unlikely to return to growth before H2’25.
MBU now supports volumes, but SBU outlook hasn’t soured
We revise our estimates down particularly due to SBU but also slightly for IBU, while MBU remains positioned for double-digit growth over the year. The FX headwind doesn’t hurt operating margins, however DT’s sales mix continues to develop unfavorably at least over the summer as SBU is lagging. We see only mid-single digit growth for FY’25 and slight softness in EBITA margin due to a more challenging H1’25, but DT has a reasonable chance to return to earnings growth towards next year as SBU customer order backlogs remain strong (only around a third of relevant security upgrades done so far). We still expect DT will top EUR 120m revenue next year as SBU has the potential to return to double-digit growth. DT could then reach an operating margin of 15%, but this year it might remain only around 13% so that absolute earnings would be quite flat.
Growth outlook should drive upside later this year
DT is valued below 9x EV/EBIT on our FY’25 estimates, a low level in absolute terms and especially relative to peers even if lower valuations are justified in the current environment. The multiple could further decline to below 7x next year, assuming SBU begins to improve in the coming quarters. The trade war still creates uncertainty, but all the three application areas have favorable demand drivers in place. Our new TP is EUR 12.0 (14.0) as we retain our ACCUMULATE rating.