Vaisala - IM should drive more growth
Vaisala’s Q3 results beat estimates due to W&E projects. IM has solid earnings drivers for next year as well, although its Q3 EBITA turned out a bit soft relative to our estimates, but W&E EBITA is unlikely to hit new record highs for a while yet.
W&E is unlikely to repeat such a high EBITA for a while
Vaisala EUR 154.0m Q3 revenue topped the EUR 142.5m/144.2m Evli/cons. estimates; the surprise was due to strong W&E project sales, which were EUR 15m higher than we estimated, yet the 16% growth in fixed FX terms also reflects strong underlying IM demand. IM continued to grow at a double-digit rate on fixed FX rates, however there was a temporary gross margin headwind due to FX and tariffs which left its EBITA short of our estimate. W&E also saw a similar headwind, in addition to which the high proportion of project sales was unfavorable for mix, yet the high revenue helped deliver a positive earnings surprise and Vaisala’s EUR 28.0m Q3 EBITA surpassed the EUR 26.5m/25.8m Evli/cons. estimates. EBITA margin would have hit 20% without the EUR 3m restructuring costs as Vaisala has taken measures since W&E suffers from soft demand particularly within the renewable energy market.
IM doesn’t see basically any weak demand spots right now
W&E achieved a significant jump in earnings over the past few years, but we believe its EBITA will now continue to flatline for the next 12 months or so at about EUR 40m, whereas IM can continue its roughly double-digit growth and see EBITA margin gain by another couple of percentage points to around mid-twenties. In our view IM should see more earnings growth over the next 12 months due to increasing volumes and prices as right now FX changes and tariffs are still masking some of the underlying demand strength. IM top line and gross margin will thus have positive drivers going forward, while its OPEX may continue to grow roughly at the rate of sales volumes.
Multiples not yet high given the growth and margin potential
Vaisala should reach its guidance now that Q3 figures were quite strong, however we estimate Q4 EBITA to decline EUR 5m y/y mostly due to W&E. Uncertainty still clouds W&E demand, but IM should remain positioned to see even faster earnings growth next year. Vaisala is valued 16.5x EV/EBIT on our FY’26 estimates, some 15% discount relative to peers. We however retain our EUR 50.0 TP; our rating is now ACCUMULATE (BUY).