Detection Technology - Earnings about to pick up more
Revenue in line with estimates, earnings continue to gain
DT’s Q3 revenue declined 10% y/y to EUR 24.5m vs the EUR 24.8m/24.6m Evli/cons estimates. MBU was soft relative to our estimate, due to a Chinese anticorruption campaign (a short-term issue but not a long-term problem) and a high comparison period, while SBU came in above our estimate. There was nothing special to note about the sales mix, however DT’s EUR 2.2m adj. EBITA was above our EUR 1.6m estimate as personnel cost reductions helped profitability a bit more than we estimated. DT’s comments about Q4 growth didn’t come as a surprise, and we estimate SBU to contribute the most growth in Q4 and next year as well. We make only small estimate revision following the report.
MBU and IBU have short-term challenges, but SBU drives
IBU still missed organic growth, but we continue to estimate its FY ’24 growth in the double-digits. MBU should also show signs of improvement, but we don’t expect it to be such a major driver in the short-term as the Chinese medical markets are going through a period of reform (Chinese pricing pressure also remains intense). We estimate DT to grow some 13% next year and its majority should be driven by SBU; the security solutions market is underpinned by favorable long-term demand trends, whereas the aviation market’s rebound has been due for some time and is set to continue at least over the course of next year. CT investments are materializing and SBU grows even if the Chinese market remains challenging in the short-term (some of the latest relevant projects include airports in e.g. Munich and Mumbai). We estimate the high single-digit growth seen for Q4 to add some further EUR 1m y/y in earnings even though its comparison period wasn’t too bad either.
Valuation not demanding as earnings improve further
We estimate DT’s FY ’24 operating margins comfortably in the double digits, which would be roughly a 500bps increase. Such an improvement implies a multiple of only around 10x in terms of EV/EBIT and represents a meaningful discount relative to peers. We update our TP to EUR 13.5 (13) and retain BUY rating.