Scanfil - Some more profitable growth ahead

Scanfil’s Q1 figures beat estimates even if expectations were already high. EBIT will remain high, but focus is already shifting to long-term development opportunities.

High volumes in particular drove an earnings beat

Scanfil’s revenue was EUR 225m, up 14% y/y (21% excluding spot purchases), vs the EUR 206m/216m Evli/cons. estimates. All segments grew nominally some 20% y/y, except for Advanced Consumer Applications but even there growth wasn’t too bad adjusting for spot purchases. Energy & Cleantech contributed most to growth, driven by demand in Europe where green transformation is taking place. Improved component availability lifted productivity as expected; the 6.7% EBIT margin wasn’t such a large surprise after the guidance revision, but high demand and the company’s ability to meet it helped EBIT to EUR 15.1m vs the EUR 13.7m/13.8m Evli/cons. estimates. Successful cost inflation management was another factor in producing a high absolute profitability level for a quarter which is often relatively muted.

Capacity additions beyond Europe likely in the long-term

High demand and component supply issues in the past years have built up inventories as Scanfil has tried to make sure it can meet demand. We believe inventories have peaked, but their rotation continues to be in focus going forward. Capacity utilization rate already runs high and hence the incremental investments will come handy. Scanfil remains ready for M&A, and expansion outside Europe is more likely than not in the long-term; the scope for deals may focus on Asia, but the US is also an option. European expansion has not been ruled out but isn’t as likely due to the already significant presence there.

We make only small estimate revisions after the report

Scanfil’s customer base is well diversified already, in its own EMS context, the accounts compete with each other only to a limited extent and a CAGR of 5%+ should be sustainable in the long run. Recent high growth however creates some uncertainty around the rate going forward and we would expect it to drop below 5% in the coming years. The 10x EV/EBIT valuation, on our FY ’23 estimates, isn’t yet that high as further growth and margin expansion might take it down to around 8.5-9.5x in the years to come, however we see valuation to have reached a neutral level. We retain our EUR 10.0 TP. Our new rating is HOLD (BUY).

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