Detection Technology - A quiet quarter ahead
DT releases its Q2 result on Wednesday, 3rd of Aug. With supply chain issues prolonging DT’s lead times and delaying customer demand, we expect Q2 net sales to decrease y/y and thus EBIT to experience a significant decline.
Net sales and EBIT to decline in Q2
In June, DT downgraded its outlook for Q2’22 with a product quality issue in its supply chain and the challenges for the company and its customers to purchase other critical components. With the company now expecting Q2 net sales to decline y/y, our net sales estimate amounts to EUR 22.4m (22.5m cons.), representing a y/y decline of 4.8%. We expect SBU and IBU to see nice double-digit growth with SBU benefiting from the recovery of aviation solutions, but MBU to decline by 22%, driven by the above-mentioned factors. With a substantial decline in topline, we also expect EBIT to be below that of the comparison period and amount to EUR 1.8m (8.1% margin). The consensus estimate for EBIT is 1.8m.
Demand still on a good level, supply chain issues to ease
The outlook for H2 is brighter with the supply chain issues easing. Some medical OEMs have indicated that component supply would improve in H2’22, which is in line with DT’s outlook, providing group-level growth. DT has also mitigated its exposure to component shortage and has modified its products so that the need for most poorly available components will be reduced during H2. With that, we expect the company to see strong 20% y/y growth in H2 driven by all BUs.
Valuation neutral ahead of Q2, but risks are elevated
DT trades with 22-23E EV/EBIT multiples of 18-13x. We find the current valuation quite neutral as with our estimates the company’s valuation is roughly in line with its peer group (based on 22-23E EV/EBIT). However, the market environment contains multiple risks, such as the war in Ukraine, high inflation rates, interest rate hikes, and slowing economic growth and industrial activity which might affect DT’s short-term performance. With our estimates intact, we retain our HOLD-rating and TP of EUR 20.0 ahead of Q2 result.
In June, DT downgraded its outlook for Q2’22 with a product quality issue in its supply chain and the challenges for the company and its customers to purchase other critical components. With the company now expecting Q2 net sales to decline y/y, our net sales estimate amounts to EUR 22.4m (22.5m cons.), representing a y/y decline of 4.8%. We expect SBU and IBU to see nice double-digit growth with SBU benefiting from the recovery of aviation solutions, but MBU to decline by 22%, driven by the above-mentioned factors. With a substantial decline in topline, we also expect EBIT to be below that of the comparison period and amount to EUR 1.8m (8.1% margin). The consensus estimate for EBIT is 1.8m.
Demand still on a good level, supply chain issues to ease
The outlook for H2 is brighter with the supply chain issues easing. Some medical OEMs have indicated that component supply would improve in H2’22, which is in line with DT’s outlook, providing group-level growth. DT has also mitigated its exposure to component shortage and has modified its products so that the need for most poorly available components will be reduced during H2. With that, we expect the company to see strong 20% y/y growth in H2 driven by all BUs.
Valuation neutral ahead of Q2, but risks are elevated
DT trades with 22-23E EV/EBIT multiples of 18-13x. We find the current valuation quite neutral as with our estimates the company’s valuation is roughly in line with its peer group (based on 22-23E EV/EBIT). However, the market environment contains multiple risks, such as the war in Ukraine, high inflation rates, interest rate hikes, and slowing economic growth and industrial activity which might affect DT’s short-term performance. With our estimates intact, we retain our HOLD-rating and TP of EUR 20.0 ahead of Q2 result.