Detection Technology - IBU and MBU are picking up too
Strong SBU and IBU sales helped DT Q2 earnings clearly above estimates as they made up for the weakness of MBU and further improved overall sales mix and hence margins.
Inorganic growth, but also organic growth in SBU and IBU
DT grew 3.5% y/y despite the deeper-than-expected plunge in MBU revenue as the strength of SBU and IBU more than made up (China SBU and IBU were as expected, MBU lower). TFT sales drove IBU’s 43% y/y growth especially now that the comparison period did not yet include the DTS acquisition, but the technology should also drive MBU growth (especially within dental applications for mid and large-size OEMs) in the future (perhaps starting late next year). The EUR 26.1m top line was only slightly above the estimates, but the favorable sales mix and cost control helped the EUR 3.3m EBITA clearly above our EUR 2.7m estimate.
Growth likely to rely less on SBU in the medium-term
MBU has potential to recover in the short-term due to the normalization of the Chinese market (low comparison figures especially for Q3) while TFT sales will help MBU and IBU (e.g. batteries) growth in the future. China has seen a lack of growth recently, and its outlook for H2 remains somewhat challenging, however high demand continues across many Western markets especially within SBU but also in India. We estimate DT Q3 revenue to grow some EUR 4m y/y, of which roughly 50% is attributable to SBU. SBU will not benefit from the acquired TFT expertise, but the segment in our view still has roughly similarly strong medium-term growth profile as IBU even if airport security investment trends have already been playing out for a while.
High H2 growth due to somewhat low comparison figures
Our estimate changes for Q4 are small, but we raise our Q3 EBITA estimate by EUR 0.6m as Q2 saw better margins than we estimated due to the favorable mix. SBU may no longer grow above 20% next year, but MBU and IBU should be able to pick up the slack in the medium-term. We estimate DT to grow 8% this year; basically all the growth is to materialize in H2, while FY ‘25 is likely to see a steadier profile when all three segments should be able to grow at significant rates. Earnings could then increase by around EUR 2-3m. DT is valued around 14x EV/EBIT on our FY ’24 estimates and 11x on those for FY ’25. We retain our EUR 18.5 TP and BUY rating.