Detection Technology - Towards improved margins
DT recorded strong Q1 growth while its profitability fell short of expectations. We foresee the growth drivers for the next few years as strong and expect EBIT to eventually improve.
Strong growth but margin improvement yet limited
In Q1, DT delivered strong topline growth, roughly in line with our estimates. Group net sales amounted to EUR 22.8m. The 12% y/y growth was driven by medical and security segments while IBU’s net sales declined due to its customers’ inventory reductions. Q1 EBIT improvement was limited by low volumes, unfavorable sales mix, and usage of spot components. Eventually, adj. EBIT amounted to EUR 1.5m (6.5% margin), which fell short of our expectations. DT reiterated its guidance for H1 by expecting group net sales growth at or above 10%. In Q2, DT expects SBU and MBU to record double-digit growth while it expects IBU to grow.
Drivers for net sales growth have increased
We expect the growth to continue as strong. In the short-term, demand disruptions might have an impact on growth rates, meanwhile, in the longer term, the recovery of China and aviation as well as general investments in security and health care will likely keep DT’s growth above market growth rates. For example, TSA has announced new CT equipment orders, which promote growth opportunities for DT for the next few years. We also foresee China’s opening to have a positive impact on SBU’s net sales development over time. In addition, with DT expanding into TFT flat panel markets, new opportunities within medical and industrial segments will arise. The expansion allows DT to expand its offering for its current medical clients and therefore has further potential to gain market share. In our view, the outlook for the coming years remains bright, which supports our estimated double-digit growth for 2023-24. However, relative EBIT might not actualize to the extent we previously estimated.
HOLD with a target price of EUR 17.5
With our revised estimates, DT is valued with 23-24E EV/EBIT and P/E multiples of 19-13x and 27-18x respectively. While DT's valuation for 2023 is still relatively high, we find that the premium is justified given the expected growth in profitability in 2024. We reiterate TP of EUR 17.5, due to only minor changes made to our 24E EBIT estimate. Rating intact at HOLD.
In Q1, DT delivered strong topline growth, roughly in line with our estimates. Group net sales amounted to EUR 22.8m. The 12% y/y growth was driven by medical and security segments while IBU’s net sales declined due to its customers’ inventory reductions. Q1 EBIT improvement was limited by low volumes, unfavorable sales mix, and usage of spot components. Eventually, adj. EBIT amounted to EUR 1.5m (6.5% margin), which fell short of our expectations. DT reiterated its guidance for H1 by expecting group net sales growth at or above 10%. In Q2, DT expects SBU and MBU to record double-digit growth while it expects IBU to grow.
Drivers for net sales growth have increased
We expect the growth to continue as strong. In the short-term, demand disruptions might have an impact on growth rates, meanwhile, in the longer term, the recovery of China and aviation as well as general investments in security and health care will likely keep DT’s growth above market growth rates. For example, TSA has announced new CT equipment orders, which promote growth opportunities for DT for the next few years. We also foresee China’s opening to have a positive impact on SBU’s net sales development over time. In addition, with DT expanding into TFT flat panel markets, new opportunities within medical and industrial segments will arise. The expansion allows DT to expand its offering for its current medical clients and therefore has further potential to gain market share. In our view, the outlook for the coming years remains bright, which supports our estimated double-digit growth for 2023-24. However, relative EBIT might not actualize to the extent we previously estimated.
HOLD with a target price of EUR 17.5
With our revised estimates, DT is valued with 23-24E EV/EBIT and P/E multiples of 19-13x and 27-18x respectively. While DT's valuation for 2023 is still relatively high, we find that the premium is justified given the expected growth in profitability in 2024. We reiterate TP of EUR 17.5, due to only minor changes made to our 24E EBIT estimate. Rating intact at HOLD.