Scanfil - Slow start for the year

Scanfil’s Q1 EBIT, at EUR 6.8m, came in below our EUR 8.0m estimate, while the EUR 130m sales topped our EUR 125m estimate. Scanfil did warn Q1 would be slow due to a few major customers and still expects clear pick-up in activity in Q2. We leave our growth and margin estimates unchanged, retaining our TP of EUR 4.75 and BUY rating.

The 7% y/y revenue decline was due to two segments

Scanfil reorganized its segments in the beginning of 2019. The new structure includes Communication (previously Networks & Communications; 14% of Q1 sales), Consumer Applications (parts of Urban Applications and Other Industries; 18% of Q1 sales), Energy & Automation (some contracts added from other segments; 20% of Q1 sales), Industrial (parts of Urban Applications and Other Industries; 28% of Q1 sales), and Medtec & Life Science (21% of Q1 sales) segments. The Q1 revenue decline was attributable to the Consumer Applications (35% y/y decrease) and Communication (20% y/y decrease) segments. The other three segments’ revenues were either flat or increasing. Scanfil also expects Consumer Applications’ top line to grow in 2019 despite the plan to halt the production of a single major product where demand has been low since Q3’18.

Q1 EBIT margin low due to volumes and product mix

Scanfil managed a meagre 5.3% operating margin in Q1 (7.4% a year ago) owing to both low sales volumes and a suboptimal product mix. Although Scanfil has now posted substandard margins for two consecutive quarters (Q4 EBIT was similarly low due to product mix), we continue to expect 6-7% operating margins going forward. Scanfil targets 7% operating margin.

Our target price remains unchanged at EUR 4.75 per share

Scanfil’s peer group valuation multiples have stayed largely flat since the previous earnings report. Scanfil currently trades at 6.1x EV/EBITDA ‘19e and 7.8x EV/EBIT ‘19e, a valuation level in line with the peer group. Moreover, as we see no changes to Scanfil’s longer term outlook, we retain our target price of EUR 4.75 per share and leave our rating BUY.

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