Vaisala - Initiating coverage with HOLD

We estimate net sales to grow at a CAGR of 4.1% in 2018E-2020E, driven by Industrial Measurements and growth areas in Weather and Environment. Meanwhile, we estimate that improving sales mix and economies of scale raise Vaisala’s EBIT margin to 13.7% in 2020E. We initiate coverage with a HOLD rating and a target price of EUR 21 per share.

Industrial Measurements - Strong growth and profitability

In 2010-2017, Industrial Measurements (IM, 33% of sales) net sales grew at a CAGR of 8.2%. In the past five years, IM’s operating margin has improved from 12 to 20 percent, driven by scale economies. The business area follows a product leadership strategy and the current focus is on the power transmission and life sciences markets.

Weather and Environment – Focusing on growth areas

In 2010-2017, Weather and Environment (W&E, 67% of sales) net sales grew at a CAGR of 2.3%. Operating margin was 8.2% in 2017E. W&E is currently focusing on meteorological projects in developing countries, digital solutions, and air quality related solutions. Meanwhile, growth is relatively slow for traditional meteorological equipment in the developed countries.

Estimating EUR 376m sales, 13.7% EBIT margin in 2020E

Vaisala targets 5% CAGR sales growth (4.0% CAGR in 2010-2017) and 15% EBIT margin (12.3% in 2017) in the long term. We estimate 4.1% CAGR sales growth for 18E-20E, driven by IM sales and growth areas in W&E. We estimate that Vaisala’s EBIT margin improves to 13.7% in 2020E, driven by economies of scale and the increasing share of IM sales.

Initiating coverage with a HOLD rating and TP of EUR 21

Our 2019E estimates and peer EV/EBIT multiples imply a value of 20.4 EUR per share. Meanwhile, our DCF model implies a value of EUR 21.3 per share. We see that Vaisala’s current share price already reflects our expectations of continued growth and gradual profitability improvements. We initiate coverage with a HOLD rating and a target price of EUR 21 per share.

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