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Scanfil - CMD notes

Scanfil’s organic growth has been impressive in the recent past, and although a breather is likely in the short-term its long-term potential remains solid due to the account base.

From five segments to three in order to better drive sales

Scanfil made small updates to its financial targets, but in our view the formation of the new Industrial segment (by combining three existing ones) was the biggest news from an operational POV as it clarifies sales focus. The segment still has a relatively attractive organic CAGR potential of 6%, although not quite as high as the 7-8% CAGRs seen for Energy & Cleantech and Medtech & Life Science. Many Scanfil accounts are favorably positioned for growth thanks to various demand drivers, in addition to which trends like supply chain regionalization continue to drive growth.

Main markets to grow at around 6-8% CAGR in FY ’23-28

The new EBIT target of 7-8% was much expected, however we view the 10% long-term CAGR target ambitious (at least on an organic basis) since the EMS business is characterized by account stickiness; it’s not easy to win additional market share, so organic growth mostly stems from the existing accounts’ volumes. Scanfil previously targeted 5-7% organic CAGR, which we viewed to be well in line with many of its accounts’ profiles and growth targets. A CAGR of 10% is likely to require at least some M&A, and while Scanfil’s balance sheet is strong enough to facilitate deals many peers are also performing well. Valuations may not thus in general be very low, however the market is fragmented and so there are bound to be some opportunities where the targets would fit Scanfil’s portfolio and could also be developed further.

We make no estimate changes at this point

Scanfil remains more profitable than a typical peer, however the margin gap has narrowed in recent years as the sector’s performance has improved. Even though Scanfil’s EBIT margin hasn’t increased that much its EBIT has risen to above EUR 60m from around EUR 35-40m a few years ago. EBIT may not rise much above EUR 60m in the short-term but continued growth could still add another EUR 20-30m to it in the next five years or so even with rather modest margin gains. Meanwhile Scanfil remains valued below 9x EV/EBIT, compared to the levels of around 10x for many peers. We retain our EUR 9.0 TP and BUY rating.

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