Etteplan - Market turn is getting closer
Etteplan was able to improve its profitability during the first quarter as was expected. While the current weaker market conditions present challenges in the short term, there are signs of an improved market.
Moving in the right direction in a challenging environment
Net sales in Q1 were EUR 97.1m (Evli est. EUR 98.6m, EUR 95.0m in Q1/23), revenue increased 2.3% y/y, only slightly below our estimate. EBIT amounted to EUR 6.7m (Evli est. EUR 7.3m, EUR 6.3m in Q1/23), at a margin of 6.9%. While the EBIT missed our estimates slightly, the direction was as expected. Engineering Solutions service area missed our estimates as the company’s organic sales declined more than we estimated coupled with operational efficiency issues in Germany. Unsurprisingly the demand situation in the defense industry, the energy industry and electrification remained at a high level during the first quarter while other areas still showed weak demand.
Market is showing some signs of improvement
On the positive side, the company is starting to see the first signs of improved investment activity in the European markets. The investments typically start with product development, affecting the company’s Software and Embedded and to some extent Engineering Solutions service areas. We expect that the more customer delivery volume dependent Technical Communication Solutions continues to be affected by the weaker demand more than S&E and ES during the H2 and therefore profitability is expected to stay below the service area’s potential during 2024. After adjusting our model to incorporate Q1 figures and some minor estimate changes for the coming quarters, we now expect net sales of EUR 385m and EBIT of EUR 30m for 2024E, both remaining below the guidance middle (guidance unchanged at net sales EUR 375-415 and EBIT EUR 28-34m).
HOLD with a TP of EUR 14.5 (prev. EUR 14.0)
Etteplan trades roughly at par when compared to its peers. In our view, a slight premium is warranted due to its above-average margins and capital efficiency. Despite slight negative estimate adjustments for 2024-2025E, the projected market turn enables us to emphasize 2025E figures in our valuation. We retain our rating at HOLD while adjusting our TP to EUR 14.5.
Net sales in Q1 were EUR 97.1m (Evli est. EUR 98.6m, EUR 95.0m in Q1/23), revenue increased 2.3% y/y, only slightly below our estimate. EBIT amounted to EUR 6.7m (Evli est. EUR 7.3m, EUR 6.3m in Q1/23), at a margin of 6.9%. While the EBIT missed our estimates slightly, the direction was as expected. Engineering Solutions service area missed our estimates as the company’s organic sales declined more than we estimated coupled with operational efficiency issues in Germany. Unsurprisingly the demand situation in the defense industry, the energy industry and electrification remained at a high level during the first quarter while other areas still showed weak demand.
Market is showing some signs of improvement
On the positive side, the company is starting to see the first signs of improved investment activity in the European markets. The investments typically start with product development, affecting the company’s Software and Embedded and to some extent Engineering Solutions service areas. We expect that the more customer delivery volume dependent Technical Communication Solutions continues to be affected by the weaker demand more than S&E and ES during the H2 and therefore profitability is expected to stay below the service area’s potential during 2024. After adjusting our model to incorporate Q1 figures and some minor estimate changes for the coming quarters, we now expect net sales of EUR 385m and EBIT of EUR 30m for 2024E, both remaining below the guidance middle (guidance unchanged at net sales EUR 375-415 and EBIT EUR 28-34m).
HOLD with a TP of EUR 14.5 (prev. EUR 14.0)
Etteplan trades roughly at par when compared to its peers. In our view, a slight premium is warranted due to its above-average margins and capital efficiency. Despite slight negative estimate adjustments for 2024-2025E, the projected market turn enables us to emphasize 2025E figures in our valuation. We retain our rating at HOLD while adjusting our TP to EUR 14.5.