Detection Technology - Patience pays off
Although DT delivered solid revenue growth in Q2, the group EBIT fell short of our low expectations. Short-term outlook in medical is uncertain while security solutions are expected to see strong growth from Q3’23 onwards. We expect a significant improvement in EBITA in the coming years.
Decent growth, but profitability fell short again
DT's second quarter was characterized by increased uncertainty and soft market. DT posted Q2 topline in line with our expectations. Group net sales amounted to EUR 25.2m with y/y growth of 10.8%. The growth was driven by medical and security markets while industrial solutions saw a decline. Traditionally DT’s cost base has scaled quite nicely with revenue growth. Q2 EBIT however fell short of our low expectations with lower volumes, unfavorable sales mix, increased credit loss provisions and the usage of spot-components. Q2 EBIT amounted to EUR 1.4m, reflecting a margin of 5.4%.
Cost savings should support 24E profitability
With soft market and uncertain near future, DT has taken actions to improve its profitability towards its medium-term target of 15%. First actions have already been taken as the company shut down its Talent hub in Nanjing. Our view its that the program will support Q3 profitability to some extent, but negative sales development will limit the margin expansion. However, from Q4’23 onwards, we foresee the profitability improving significantly. Reaching 15% EBITA margin target however contains elevated uncertainty.
Market’s expectations for 2024 pushed low
Our 23E EBITA declined due to estimate revisions, but 24E EBITA remained relatively stable compared to our previous expectations. With 23E profitability below DT’s sustainable level and better outlook of 2024 profitability, we continue to value the company with our 2024 estimates. DT currently trades with a 24E EV/EBITA multiple of 11x, which represent notable discount to the company’s peers as well as to its sustainable historical levels. Poor track during the past few years on one hand justifies valuation below peers, but on the other hand, with decent revenue growth and cost savings materializing, EPS growth potential is significant. We adjust our TP to EUR 15.5 (16.0) with 24-25E EBIT estimates intact but uncertainty elevated. Valuation remains attractive; our rating remains at BUY.
DT's second quarter was characterized by increased uncertainty and soft market. DT posted Q2 topline in line with our expectations. Group net sales amounted to EUR 25.2m with y/y growth of 10.8%. The growth was driven by medical and security markets while industrial solutions saw a decline. Traditionally DT’s cost base has scaled quite nicely with revenue growth. Q2 EBIT however fell short of our low expectations with lower volumes, unfavorable sales mix, increased credit loss provisions and the usage of spot-components. Q2 EBIT amounted to EUR 1.4m, reflecting a margin of 5.4%.
Cost savings should support 24E profitability
With soft market and uncertain near future, DT has taken actions to improve its profitability towards its medium-term target of 15%. First actions have already been taken as the company shut down its Talent hub in Nanjing. Our view its that the program will support Q3 profitability to some extent, but negative sales development will limit the margin expansion. However, from Q4’23 onwards, we foresee the profitability improving significantly. Reaching 15% EBITA margin target however contains elevated uncertainty.
Market’s expectations for 2024 pushed low
Our 23E EBITA declined due to estimate revisions, but 24E EBITA remained relatively stable compared to our previous expectations. With 23E profitability below DT’s sustainable level and better outlook of 2024 profitability, we continue to value the company with our 2024 estimates. DT currently trades with a 24E EV/EBITA multiple of 11x, which represent notable discount to the company’s peers as well as to its sustainable historical levels. Poor track during the past few years on one hand justifies valuation below peers, but on the other hand, with decent revenue growth and cost savings materializing, EPS growth potential is significant. We adjust our TP to EUR 15.5 (16.0) with 24-25E EBIT estimates intact but uncertainty elevated. Valuation remains attractive; our rating remains at BUY.