Vaisala - A perfect storm in many ways

Vaisala’s Q1 result beat our and consensus expectations thanks to a better than expected and solid performance in both BU’s. The improved market environment and strong order book attributed to net sales growth and profitability improved thanks to higher sales and lower OPEX level due to Covid-19. We have increased our estimates for 2021-23E to reflect the expected market improvement. Based on our renewed estimates and improved outlook, we raise our target price to €33 (prev. €32), our rating is now HOLD (prev. SELL).

Strong start to the year

Vaisala’s Q1 result beat our and consensus expectations thanks to solid performance in both BU’s. Q1 net sales increased by 5% to 92 MEUR (86.5 Evli / 85.7 cons). Q1 EBIT came in at 8.1 MEUR (5.9 Evli / 5.0 cons), resulting in 8,8% EBIT-margin (Q1’20: 5.2 MEUR, 6% EBIT-margin). Orders received grew by 18% to 106.1 MEUR (Q1’20: 88.7 MEUR). As a result of strong order intake, order book was record high at 155.4 MEUR (Q1’20: 141.6 MEUR). IM continued its strong performance; net sales grew 12% to 39.7 MEUR (39.5 MEUR Evli). IM EBIT was 9.4 MEUR (8.9 MEUR Evli), resulting in 23,8% EBIT-margin (Q1’20: 21,4%). IM net sales growth was strong in life science and power industry market segments and good in industrial instruments, but net sales declined in liquid measurements. IM’s order intake growth was 22% coming from all market segments and boosted by the economic recovery in China. W&E net sales increased by 1% to 52.2 MEUR (47 MEUR Evli). W&E EBIT was -0.9 MEUR (-2.6 MEUR Evli). W&E net sales grew in renewable energy, ground transportation, and meteorology market segments, but decreased in aviation, where market is still weak due to Covid-19. W&E’s orders received grew nicely by 15%. W&E orders received increased in renewable energy and ground transportation market segments, whereas meteorology market segment was flat, and aviation decreased compared to previous year.

Outlook updated, more positive outlook upgrades likely to follow

As a result of strong start to the year, Vaisala raised the lower limits of its business outlook for 2021; net sales are expected to be between 380–400 MEUR and EBIT between of 35–45 MEUR (earlier net sales 370-400 and EBIT 30-45). The outlook update did not come as a surprise given the strong orders received and order book end of last year. We see further positive guidance improvements likely given the strong order intake and order book, improving market environment, and deliveries proceeding well.

Target price €33 (prev. €32) with HOLD rating

We have increased our net sales and EBIT estimates for 2021-23E to reflect the expected market improvement. In 2021E, we expect +4,6 net sales growth driven by +7% growth in IM, while we expect W&E growth to be around 3%. We expect EBIT of 44.6 MEUR (11,2 % margin), driven by good performance in IM. Both our net sales and EBIT estimates are at guidance upper range. For 2022-23E we expect similar net sales growth and Vaisala to achieve above 12% EBIT margins as IM continues strong and W&E’s profitability improves. On our renewed estimates, Vaisala is still trading at clear premiums compared to our peer group and we continue to see valuation stretched given Vaisala’s weaker financial performance compared to peer group. Based on our renewed estimates and improved outlook, we raise our target price to €33 (prev. €32), our rating is now HOLD (prev. SELL). Our TP values Vaisala at 22-23E EV/EBIT multiples of 22x and 21x which is above the peer group, reflecting Vaisala’s technology leadership position, strong sustainability profile, healthy dividend, and especially IM’s highly profitable growth with possibility of further add-on acquisitions.

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