Scanfil - Margins set to stay high
Some softening in volume growth was long due
Scanfil made small cuts to its guidance ranges for the year. The revisions weren’t large as revenue and EBIT midpoints declined by some respective 3% and 2%. The update undid the positive July revision; the current revenue midpoint lands a bit below the April upgrade while the EBIT midpoint is still 5% above where it was 6 months ago. In our view the update doesn’t contain any substantial news as it was clear before the 30% underlying growth seen in Q2 figures (including 61% y/y organic growth for Energy & Cleantech) couldn’t possibly be sustained for very long.
Growth a bit uncertain, but EBIT to remain above EUR 60m
The guidance midpoints suggest Scanfil will reach 7.0% EBIT margin in H2’23; in our view the 7% margin assumption shouldn’t be too sensitive to growth going forward, in other words Scanfil should be able to manage roughly such high margins even if top line declines slightly next year. We revise our revenue estimates down by EUR 30m for this year and EUR 60m for next. We don’t make any meaningful changes to our EBIT margin estimates, but revise our absolute EBIT estimates down by around EUR 2-3m for this and coming years. In our view there’s some elevated uncertainty around growth rates going forward after such a period of high demand, yet EBIT should remain above EUR 60m even in a softer demand environment.
Earnings multiples have again turned compelling
Scanfil traded above 10x EV/EBIT only a couple of months ago (then about 10% higher than peer multiples), however the multiple has now declined to around 7.5x on our FY ’23 estimates. Meanwhile peer multiples haven’t changed much and Scanfil is thus now valued at a double-digit discount. There’s some variation in peer multiples but they mostly trade around 8.5-9.5x EV/EBIT on FY ’23-24 estimates, and therefore Scanfil’s 7.0x EV/EBIT (on our EUR 64.7m estimate for next year) likewise represents a meaningful discount. Scanfil may not be able to achieve EBIT margins significantly higher than 7% (already 30% above peers), yet profitability is unlikely to soften much below that level unless there’ll be a dramatic top line decline. Our new TP is EUR 9.0 (11.5); our rating is now BUY (HOLD).