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Vaisala - Expecting slower growth

Vaisala reports its Q3 earnings on 27th of October. Low industrial activity slowed down IM’s growth during Q2 which we estimate to have continued during Q3. We continue to see the valuation attractive despite the temporary market pressure.

Slight adjustments to estimates ahead of Q3

Despite the current weak market sentiment, especially on the IM side of Vaisala’s business, we expect group level net sales in Q3/23 to grow to EUR 139.2m, with y/y growth of 4.5%. In terms of profitability, we estimate group EBIT of EUR 23.8m for Q3/23 with slightly improved margins when compared to Q3/22. For W&E, we expect y/y net sales growth of 9.8% during Q3 while for IM we expect a slight net sales decrease of 2.5% y/y. For IM, we see continued gross margin pressure as a result of price competition especially in the Chinese market. In addition to gross margin pressure, we expect overall lower profitability driven by the soft net sales development. For W&E, we estimate margin improvement for Q3 y/y driven by higher volumes and continued strong gross margin development stemming from improved sales mix and lower amount of spot component purchases. Our projected net sales for 2023 are EUR 552.8m, with reported EBIT reaching EUR 66.4m, both within the guidance range that was updated ahead of the Q2 earnings release.

 

Market conditions in Q3 remained largely unchanged

Vaisala’s Q2 was two-folded as the demand continued strong for W&E side of the business while IM business area suffered from lower demand driven by slowed down industrial activity. We estimate that the development seen during Q2 has largely continued to Q3. We see no improvement in the economic data when looking at the industrial production globally, on the other hand, there has been no major negative shift when compared to Q2. W&E is different story as it has a larger proportion of public clients, reducing the business area's susceptibility to economic cycles. Hence, we anticipate continuation of strong performance.

 

BUY with a TP of EUR 39 (42)

We revise our TP slightly downwards driven by our estimate changes and lower peer group multiples. We continue to consider Vaisala moderately valued, trading at a 10-15% discount compared to our peer group on adj. EV/EBIT basis.

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