Detection Technology - Security strength adds to earnings

Favorable mix and cost control lifted EBITA margin to 10%

DT’s Q1 revenue came in at EUR 22.7m, in line with the EUR 22.6m/22.5m Evli/cons. estimates. MBU landed some EUR 1m below our estimate while SBU topped our expectations by a similar amount, which led to a more favorable mix and so DT’s EUR 2.3m EBITA exceeded our EUR 1.6m estimate as fixed costs also remained under control. SBU is in our view poised to become the largest segment already this year, which should help DT to above 13% EBITA margin quite soon. The report didn’t contain many surprises other than the fact that MBU was weaker than expected while SBU was stronger. The differences between the growth outlooks of the two are to narrow a lot towards the end of the year as MBU is seen to resume growth in Q3, however Q2 will still be soft for the segment.

MBU still challenging, SBU has strong tailwinds

We expect MBU to resume mid-single-digit growth in H2, whereas SBU and IBU should be positioned to reach roughly twice that rate. The aviation security market in Europe and India (where DT has initiatives to scale up) continues to enjoy tailwinds as high travel demand persists even after the pent-up phase post pandemic. We estimate DT to grow around 7% this year despite the fact that we see MBU down by 6%; MBU’s return to mid-single-digit growth should accelerate DT to some 9% growth next year even though SBU and IBU are likely to see slightly lower rates then. We estimate DT to achieve 13.5% EBITA margin in FY ’24, which could improve by another 200bps or so in FY ’25 thanks to higher revenue and even more favorable mix. There’s still uncertainty around the Chinese MBU market’s recovery, but SBU’s strength means DT should see at least above 5% growth in the medium term.

Multiples are low assuming growth and margin expansion

DT is still valued at 14x EV/EBIT on our FY ’24 estimates, some 30% discount relative to peers, and continued growth would help earnings gain by another EUR 4m in FY ’25; the corresponding 10x EV/EBIT multiple represents an even larger 40% peer discount. We retain our EUR 17.0 TP and BUY rating.