Detection Technology - More revenue and earnings growth

DT reports Q4 on Feb 1. MBU may not grow much this year, yet organic SBU-driven recovery and recent measures are to underpin earnings growth this year as well as next.

SBU growth and cost measures continue to lift earnings

DT’s Q3 top line declined 10% y/y as MBU faced headwinds due to a high comparison period and Chinese anticorruption campaign, yet profitability already improved thanks to the cost reduction measures. Meanwhile SBU volumes continued to recover, driven by the aviation market, and we estimate the segment’s growth to extend at similar double-digit rates (excluding China, where volumes should remain quite flat) going forward as CT systems are delivered to airports in many countries. We make no changes to our Q4 estimates; we estimate 8% y/y growth, mostly driven by SBU. We expect adj. EBITA to have further improved to EUR 4.2m.

Performance improves despite challenging Chinese markets

SBU should drive growth also this year (there’s growth, besides aviation, in urban applications) whereas MBU and IBU volumes can be expected to stabilize in organic terms after recent softness, although the Chinese MBU market remains challenging in the short-term as prices are likely to decline by around 10%. IBU’s organic growth may also still be quite soft due to e.g. the food industry, but industrial outlook should soften no more and the Haobo acquisition could help to drive rather strong revenue growth for the segment. We therefore expect SBU and IBU to show significant relative growth figures this year, while MBU may stay roughly flat. We estimate DT to grow around 10% this year, and the improved cost efficiency and gross margins should help the company to about 13-15% relative profitability (the Haobo acquisition dilutes earnings a bit as it still makes a loss).

Valuation not demanding as growth translates to earnings

DT is likely to guide at least some growth for Q1. In our view the FY ’23 comparison figures suggest growth could materialize at a relatively steady pace over the course of the year, but earnings are in any case improving (we estimate the FY ’24 gain at some EUR 6m). Valuation has also gained to above 13x EV/EBIT on our FY ’24 estimates, however the level remains quite modest relative to peers especially considering the longer term potential DT still has. Our new TP is EUR 16.0 (13.5) as we retain our BUY rating.

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