Vaisala - Focus on integration and execution in H2

Vaisala’s Q1 missed our estimates, but overall our expectations for full year 2019E remain intact. After two recent acquisitions and subsequent increase in operating expenses, Vaisala needs to succeed in integrating the acquired business. Strong received orders and pick up in larger projects support outlook. We maintain HOLD recommendation with target price of 18 euros.Vaisala’s Q1 missed our estimates, but overall our expectations for full year 2019E remain intact. After two recent acquisitions and subsequent increase in operating expenses, Vaisala needs to succeed in integrating the acquired business. Strong received orders and pick up in larger projects support outlook. We maintain HOLD recommendation with target price of 18 euros.

Q1 miss, but order book and projects support outlook

Vaisala’s Q1 result miss was due to lower than expected seasonal net sales in Weather & Environment. W&E net sales were 49.6 MEUR vs. 55 MEUR our expectation, while Industrial Measurements net sales were 34.6 MEUR vs. 33 MEUR our expectation. On Group level, Q1 EBIT came in at 0.0 MEUR vs. our expectation of 2.3 MEUR. Despite Q1 miss, the outlook for both BU’s looks supportive with strong orders received (+30%) and recent pick up in larger W&E projects (15 MEUR Argentina and 7 MEUR Sweden deals announced).

Estimates unchanged, OPEX increase to weigh on 2019E EBIT

Post Q1, our estimates are unchanged. We expect 2019E net sales to be 382 MEUR (10% growth yoy) and EBIT to be 31 MEUR (41 MEUR adjusted for PPA and one-offs), representing 8.1% EBIT margin (10.8% adj. EBIT margin). Estimated EBIT decline in 2019E is due to acquisitions related increase in operating expenses, which we estimate to increase roughly 16% to 172 MEUR (vs. 148 MEUR 2018).

HOLD maintained with target price of 18 euros

On our estimates, Vaisala is trading at adjusted EV/EBIT and EV/EBITDA multiples of 17x and 14x for 2019E, which is 4-8% lower than our peer group. Looking at 2020E multiples, valuation looks slightly more attractive given our estimated EBIT improvement, but we are not ready to put emphasis on next year due to the on-going process of integrating the acquired businesses. We see current valuation as fair, thus we maintain HOLD and target price of 18 euros.

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