Detection Technology - Looking for signs of recovery in SBU

Detection Technology will report its Q1 result next Tuesday, April 27th, at 9:00 EET. As usual, we look forward to hearing the latest developments and outlook regarding the security, industrial and medical imaging markets. We expect DT to return to net sales and EBIT growth path this year, with the help of continued good performance in MBU and a recovery in SBU. We maintain our previous target price of €28.5 ahead of the earnings report, our recommendation is now HOLD (prev. BUY).

Light in the end of the SBU tunnel

In its Q4 report, DT was cautiously optimistic that SBU growth is turning a corner. SBU sales will still decrease in Q1 y/y, but start growing in Q2, although demand is still uncertain, as for example China’s critical infrastructure and rail transport recovery projects have progressed slowly. MBU sales are expected to grow double digit in H1/2021. DT’s total net sales are expected to decrease in Q1 and grow in H1 of 2021. We expect Q1 net sales to decline 4% to 19.2 MEUR (19.1 MEUR cons) and Q1 EBIT of 2.2 MEUR (1.9 MEUR cons).

 SBU split into two separate segments: SBU and IBU (Industrial Solutions Business Unit)

DT announced in conjunction with its Q4 result that it is splitting SBU into two separate business units to better boost both BU’s development. The new SBU focuses solely on security application sales, while the newly launched Industrial Solutions Business Unit (IBU) focuses on the industrial segment. In 2020, IBU accounted for EUR 11.6m (27%) of SBU sales and 14% of total sales. As a result of the new segment, MBU currently represents the biggest segment with approximately 50% of sales thanks to strong momentum in MBU and pandemic headwinds in SBU. Industrial market is categorized as higher margin, but smaller volumes, a more fragmented customer base, and a variety of end applications. DT has said it aims to complement its industrial portfolio with software and algorithms. DT expects IBU sales to grow in H1. We have incorporated the new segment data with 2020 comparison figures into our models.

 We maintain our previous target price of €28.5

Based on the new segment data, we have slightly calibrated our estimates upwards, but overall picture looks the same. We expect both net sales and EBIT growth to recover in 2021e with the help of continued good performance in MBU and a recovery in SBU. We maintain our previous target price of €28.5 ahead of the earnings report, our recommendation is now HOLD (prev. BUY).

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