Detection Technology - Earnings stay on a growth track
DT’s Q3 performance was a bit better than estimated, however the company trimmed its growth outlook for the next two quarters.
Solid Q3’24, but Q4’24 and Q1’25 growth outlook trimmed
DT’s EUR 27.1m Q3 revenue was slightly soft relative to the EUR 27.6m/27.4m Evli/cons. estimates yet the EUR 4.2m adj. EBITA topped the EUR 4.0m/3.8m Evli/cons. estimates as EBITA margin was above the 15% medium-term target. In our view there weren’t any big surprises in terms of sales mix and the beat was thus due to smaller-than-estimated cost items. DT however trimmed its growth estimates for the next six months or so; this was somewhat disappointing as continued double-digit y/y growth could have helped Q4 EBITA gain by more than EUR 1m y/y. In our opinion the change is especially due to continued softness in the Chinese market, whereas SBU has been growing at a double-digit rate for a while now.
FY’25 EBITA margin still likely to gain by some 200bps
We cut our Q4 growth estimates for all three units by around 10%; we estimate MBU to decline by 3% y/y, but we still expect it to grow by 6% next year as the comparison figures are not too challenging. We continue to estimate 9% growth for DT in FY’25 as the favorable medium-term outlook for SBU and IBU hasn’t changed, especially when it comes to airport security demand but also within other relevant applications. DT in addition announced it will change its reporting structure so that the current end-market units are discontinued and replaced by three regional business units.
Valuation isn’t too high as growth outlook is reasonable
We now estimate 2% revenue growth for Q4, which in our view supports some additional EBITA margin expansion (to around 16%); the 10% cut in top line estimate leads to a decline of EUR 1m in our EBITA estimate to EUR 4.9m. Our FY’25 EBITA margin estimate stays basically unchanged at 15.5% while the lower revenue estimate leads to a downward revision of EUR 0.5m in terms of EBITA. There haven’t thus been large changes to DT’s valuation and outlook, and the around 16x EV/EBIT on our FY’24 estimates remains below peer multiples, while the EUR 3-4m earnings gain we estimate for FY’25 would bring the multiple down to about 12x. We retain our EUR 19.0 TP and BUY rating.