Vaisala - IM to deliver earnings growth
Vaisala reports Q4 results on Feb 12. We believe Vaisala’s FY’25 EBITA improved only slightly y/y, while FY’26 should see a gain of some EUR 10m driven by strong IM growth.
W&E growth prospects have mostly faded for now
Vaisala’s FY’25 is to mark another year of mid single-digit growth with the distinction that from here on IM is to contribute growth while W&E might remain broadly flat after growing at a CAGR of 10% over the past four years or so; the renewable energy market drove volumes for the segment, but right now its outlook is challenging due to weak offshore wind project demand while the Chinese wind and solar markets don’t seem to be that relevant. We estimate W&E Q4 revenue to have declined by some 6% y/y, while IM has grown 5%, so that Vaisala’s top line is down 1%. We expect Q4 EBITA to have decreased almost EUR 6m y/y to EUR 24.6m as W&E had a very strong comparison period.
IM, as well as Xweather, still has the growth drivers
The renewable energy market is now a short-term headwind for W&E so that it’s hard to see growth within projects and products (30% of which through projects) sales, although Vaisala aims to grow W&E services by offering more remote monitoring diagnostics and preventive maintenance. Meanwhile Xweather should continue its double-digit growth as the business looks to upsell to the existing accounts while also adding new ones; the focus has previously been on the US and Europe, but now also some Asian accounts are targeted. The growth of W&E services and Xweather might soften the blow coming from the weak renewable energy market, but Vaisala’s growth prospects now rest on IM for the next year or two. The segment grew at a double-digit rate over the past year, and similar trends should continue in FY’26 as outlook remains strong within key application areas including data centers, power and biotech.
Modest multiples considering growth and margin expansion
IM likewise has potential to increase its service revenue (sensor calibration), but its EBITA gains are driven by scale benefits when volume growth continues, while W&E is to focus more on cost control and efficiency (including pruning of offering). For FY’26 we expect growth to continue at around 6-7%; W&E EBITA might remain flat or decline a bit, but for IM we estimate 24% EBITA margin. On this basis Vaisala is valued below 16x EV/EBIT on our FY’26 estimates, or 20% below peer multiples. We retain our EUR 50.0 TP; our new rating is BUY (ACCUMULATE).