Detection Technology - Headed towards 15% EBITA margin
DT reports Q3 results on Oct 29. The growth rate of MBU still lags those of SBU and IBU, but its stabilization should lift DT to a double-digit rate in the short-term while SBU and IBU are unlikely to grow as fast as they did in Q2.
Q3 EBITA should have improved by roughly EUR 2m y/y
DT’s MBU segment Q2’24 LTM revenue was down 18% y/y as the Chinese market has remained soft. Any big rebound is yet to be seen, but the comparison figures are sufficiently low so that some stabilization can be expected from now on and a roughly mid single-digit growth rate should be realistic. The segment’s growth rate will likely continue to lag those of SBU and IBU at least for the next year since the former is driven by continued security investment plans while the latter saw significant improvement across the board already in Q2. We estimate DT Q3 revenue to have grown 13% y/y to EUR 27.6m, and we expect EBITA at EUR 4.0m.
CT in SBU and TFT in IBU drive growth at least for now
We estimate SBU growth to moderate a bit to around 10-15% going forward as comparison figures are not particularly low, however airport security investments may continue until at least late 2026 (driven by demand for CT scanners). DT has established itself in India, a market where there’s especially SBU demand but also potential for IBU and MBU within the TFT business. The new TFT business (DTS) is growing a bit faster than DT, driven by industrial applications, and it has more room to pick up later as it should find some medical volumes within the next year or so. The IBU segment has also seen legacy volume recovery besides TFT applications after a period of soft demand, and we estimate it to be the fastest-growing segment this year. In our view IBU should be positioned for at least high single-digit growth next year, yet the growth of TFT could still help it even a bit higher than that.
EBITA has long-term potential clearly above EUR 15m
We estimate ca. 14% FY’24 EBITA margin, from which there should be further upside next year when all segments have potential to grow. We estimate EBITA margin to then top 15%; the level would still be weighed down a bit by investments in the TFT business. The corresponding EV/EBIT multiple would then decline to 12x from the current level of 15x and the double-digit peer discount would remain. Our new TP is EUR 19.0 (18.5) as we retain BUY rating.