Detection Technology - Security business drives growth
Q3 not yet great, but SBU investment continues to rebound
DT’s Q2 saw 11% y/y growth, driven by medical and security and in part because of a soft comparison period. There was already uncertainty around the Chinese markets and customer inventory corrections, and such concerns seem to have persisted over the course of Q3. The MBU unit in particular faces high comparison figures and we estimate its Q3 top line to have declined by 21% y/y. Meanwhile SBU has been growing since last year as the aviation sector has recovered since the pandemic shut its investments. Growth there derives from both the US and China; we estimate SBU’s Q3 growth at 7% and note the rate should improve in Q4 (despite a relatively strong comparison period), and we expect SBU to drive growth also next year. We estimate DT Q3 revenue to have declined 9% y/y to EUR 24.8m. We see Q3 adj. EBIT at EUR 1.3m, a meaningful improvement over the comparison period although still quite shy relative to potential.
Focus has already shifted to Q4’23 and FY ’24 figures
MBU volumes should show signs of stabilization in Q4, while the unit has potential to grow a bit next year (despite pressure on pricing and challenges in China). We expect SBU to be by far the most important growth driver over the next year or two as aviation recovery has found solid ground, while the prospects shouldn’t be too bad either for other relevant security applications. IBU has a lot of potential, but its organic growth is likely to remain soft in the short term as many sectors’ industrial outlook is still uncertain. Cost savings (EUR 2m on an annual basis) are to help bottom-line already in Q4, which we estimate to lead to EUR 3.6m EBIT together with 8% y/y growth.
Double-digit growth drives FY ’24 EBITA margin above 13%
FY ’23 adj. EBITA margin is to remain modest at around 8%, however we estimate profitability to recover above 13% next year thanks to both volume growth and cost savings. DT’s multiples remain elevated relative to peers on modest FY ’23 earnings, but the valuation is only around 10.5x EV/EBIT on our FY ’24 estimates, which represents a significant discount to peer multiples. Our new TP is EUR 13.0 (15.5); we retain BUY rating.