Scanfil - We see extended solid performance

Scanfil’s 7.9% EBIT margin topped our estimate, and while the result was partly due to a favorable product mix, we now see the company in shape to post 7% EBIT margins on a regular basis. Our new TP is EUR 5.00 (4.75), rating BUY.

HASEC contributed, yet organic growth was also decent

Scanfil’s sales have developed in a stable fashion during the last few years. The Communication segment was the only one of the five where revenue declined y/y. The segment supplies telecommunications companies with products such as base stations, is arguably the most cyclical and challenging of Scanfil segments, and with LTM revenue of EUR 86m the smallest. Nevertheless, even Communication sales have been improving since Q2. Consumer Applications and Energy & Automation grew slightly, and Medtec improved by 14% relative to the soft comparison period. Most noteworthy was the Industrial segment, which contributed ca. 80% of the revenue increase, and as such the most significant segment generates almost a third of Scanfil revenue. Although HASEC added revenue meaningfully, more than half of the Industrial segment’s growth was organic.

We see Scanfil able to routinely post 7% EBIT margins

Scanfil says the integration of HASEC is proceeding according to plan. Revenues attributable to HASEC will be mostly reported under the Industrial and Medtec segments. Scanfil says the strong 7.9% operating margin was partly due to favorable product mix, and so we wouldn’t extrapolate this profitability level too far. However, Scanfil posted an above 7% operating margin also in Q2 with what the company says was a normal product mix. It’s early to assess prospects for next year, but in the light of such performance Scanfil’s 7% operating margin target for ’20 might start to look a tad conservative.

We raise our TP due to continued good performance

We’ve made upward revisions to our EBIT estimates, now expecting Scanfil to reach 7.0% margin already in ’19 (we previously expected 6.6%). We base our TP on Scanfil’s historical multiples, which have valued the company at some 7x EV/EBITDA and 9x EV/EBIT, and thus our updated TP stands at EUR 5.00 (4.75). Our rating remains BUY. We also note Scanfil’s peer group multiples have gained sharply during the last couple of months.

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