Vaisala - Positioning mostly favorable
Vaisala reports Q3 results on Oct 23. W&E is likely to see its earnings decline in H2 as well, while IM could still help Vaisala to achieve modest earnings growth also this year.
We believe EBITA gains more next year
Vaisala’s short-term outlook is twofold as W&E suffers not only from a weaker renewable energy market but also headwinds within aviation and meteorology, whereas IM remains well-positioned for high single-digit growth driven by many trends across various industries. We see Q3 results relatively flat; we estimate some 4% y/y top line growth but expect W&E earnings to decline a bit due to the less favorable mix, yet the continued strength of IM should compensate. Our EUR 26.5m Q3 EBITA estimate implies a gain of EUR 0.7m y/y. Vaisala’s guidance suggests modest earnings gains for FY’25; the company was still ahead of last year in H1, but H2 faces higher comparison figures.
Multiple levers for earnings growth within both IM and W&E
Vaisala may not achieve big earnings gains this year, but in our view FY’26 could again see EBITA gain by more than EUR 10m. We expect IM to hit a record-high EBITA (in absolute terms, not margin) this year, yet there are many reasons why its earnings growth should continue next year as well. Its competitive product offering hasn’t seen demand impact due to tariff-related price increases and so growing volumes still drive higher gross margins thanks to operational leverage, and there are also factors like the new Indigo modular product family platform for efficient scaling. W&E isn’t in quite such a favorable position as its pricing power is more limited, however even there price increases are to be seen over the coming quarters while the continued double-digit growth of Xweather SaaS will help gross margins. Vaisala will continue to invest roughly 12% of revenue on R&D, but we believe there should be some relative scale benefits in terms of SGA as growth outlook appears robust.
Valuation not demanding given Vaisala’s growth profile
In our view Vaisala has solid earnings gains prospects for years to come given the combination of revenue growth, improving gross margins as well as lower relative operating costs so that operating margin could gain by many percentage points over the coming years. Vaisala is valued around 16-20x EV/EBIT on our FY’25-26 estimates, below peer multiples even though Vaisala still has relatively strong earnings growth outlook. We retain our EUR 50.0 TP; our new rating is BUY (ACCUMULATE).