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Scanfil - Stable margins, growth to resume

Scanfil’s Q1 revenue fell more than estimated, which also caused EBIT to drop below estimates, however operating margin remained quite high while demand outlook is already showing signs of stabilization.

EBIT margin remained high despite the decline in revenue

Scanfil’s Q1 revenue fell 11.5% y/y to EUR 198.9m, vs the EUR 212.5m/210.2m Evli/cons. estimates, since Industrial and Medtech & Life Science both fell by some 15% y/y due to destocking as well as account demand changes. Energy & Cleantech decreased 3.3% because of lower demand for energy savings solutions, where there was too optimistic demand last year, but the segment still grew by 11.3% excluding such products; we estimate it to be the only segment to add top line this year as comparison figures remain high especially in Q2. Scanfil’s EUR 12.7m EBIT was a bit soft relative to the EUR 13.9m/14.0m Evli/cons. estimates as revenue fell more than estimated, however the margin remained strong at 6.8% excluding layoff costs and FX changes.

Margins stable, volumes to grow again towards next year

Scanfil improves operational efficiency to safeguard profitability even in a more challenging market. We estimate Scanfil H2 revenue to grow 1.5% y/y since the comparison period is no more that challenging, while we expect FY ’25 to see 5% growth as Energy & Cleantech and Medtech & Life Science have many large and favorably positioned accounts driving higher volumes (we expect prices to remain quite stable). In our view there aren’t many significant differences in growth outlook across geographies, although Asia is slightly more dynamic than Western markets (especially in Medtech & Life Science). We estimate EBIT to decline by EUR 1.5m this year but expect it to gain some EUR 3m next year as EBIT margin has basically stabilized around 7%.

Valuation not demanding in the light of margins and mix

Scanfil is valued below 9x EV/EBIT, a discount of some 15% relative to peers, which we consider a low level given that Scanfil has demonstrated how it can achieve relatively high margins also in more challenging environments. In our view the company’s consistently high margins and attractive account mix would justify higher multiples even if earnings growth outlook is currently a bit muted. We retain our EUR 9.0 TP and BUY rating.

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