Vaisala delivered a decent Q2 result, with improved EBIT despite decrease in net sales and orders received. Vaisala maintained its 2020 guidance although market outlook is still weighed down by COVID. Although there are still short-term risks related to the pandemic, we see Vaisala coming out rather unscathed from the pandemic, and therefore we are ready to emphasize more the coming years and Vaisala’s post-COVID performance. Our estimates remain unchanged, and we continue to see Vaisala executing well but valuation is challenging. We maintain HOLD recommendation with target price of 29 euros (prev. 26).
W&E stronger than expected, while IM soft
On a whole, Vaisala’s Q2 result was broadly in line. Q2 net sales decreased -5% to 91,4 MEUR vs. 93,5 MEUR Evli and 94 MEUR consensus. Q2 EBIT improved 9,7% y/y to 7,9 MEUR (8,7% margin) vs. 8,1 MEUR our expectation (cons. 7,9 MEUR). EPS was 0.16 (0.19 Evli, 0.20 consensus). Gross margins held up nicely (54,5% vs. 54,2% last year) despite lower volumes. Orders received decreased -2% to 95,9 MEUR due to weakened order intake in IM and especially in APAC region. Overall, W&E fared slightly better than we expected with Q2 EBIT at 0,7 MEUR (0,2 MEUR Evli) and decent orders received +1% due to strong EMEA. On the other hand, IM was softer than we had expected. IM net sales declined -5% to 33,8 MEUR (37,1 MEUR Evli) and EBIT was 7,1 MEUR (7,9 MEUR Evli), due to lower net sales. IM order intake declined -8% in all regions, especially APAC. According to Vaisala, IM’s high-end humidity and high-end carbon dioxide markets were affected by COVID as customers suspended operations and delayed decision making.
2020 outlook maintained
Vaisala estimates that lost order intake during H1 was roughly 15–25 MEUR and lost net sales was in range of 5–15 MEUR. Looking forward, it’s clear that uncertainties will continue. W&E outlook is weighed by the weakened outlook for aviation and lack of larger infra projects, especially in developed countries. IM is also expected to suffer short term from COVID repercussions. Vaisala maintained its 2020 outlook it issued in April, expecting FY20 net sales of 370–405 MEUR and EBIT of 34–46 MEUR. Our estimates remain broadly unchanged after the report. We believe pulling out of COVID will help IM fare better in H2, and our 20E estimates are at midpoint of guidance. We expect 2020e net sales to decline roughly 4% to 388 MEUR and reported EBIT to decline to 39,5 MEUR. Our 2021-22E estimates remain unchanged and we continue to see Vaisala’s targeted above 5% sales growth achievable and road to >12% margins resuming after pandemic resides.
Valuation remains challenging
On our estimates, Vaisala is still trading at premiums compared to our peer group, and as noted before, we see valuation stretched given Vaisala’s weaker financial performance compared to peer group. Peer group valuation multiples have however risen, and premiums are now more acceptable. Although there are still short-term risks related to the pandemic, we see Vaisala coming out rather unscathed from the pandemic, and therefore we are ready to emphasize more the coming years and Vaisala’s post-COVID performance. We raise our target price to 29€ (prev. 26€) and maintain our HOLD recommendation. Our target price values Vaisala at 21-22e EV/EBIT multiples of 22x and 19x which is above peer group, reflecting Vaisala’s strong sustainability profile, growing dividend, and especially IM’s highly profitable growth with possibility of further add-on acquisitions.