Vaisala - Positive profit warning

Vaisala issued a positive profit warning yesterday, with operating result being better than previously guided (EBIT range 30-36 MEUR). Operating profit for 2018 was 39 MEUR vs. 35.5 MEUR our estimates. Net sales for 2018 was 349 MEUR vs. 349 our estimate. W&E net sales in Q4 were 78 MEUR vs. 78 MEUR our estimates, IM net sales in Q4 were 31 MEUR vs. 30 MEUR our estimates. Most of the profitability beat was due to better than expected profitability in W&E, were EBIT was 10 MEUR vs. 5.2 MEUR our estimates (IM EBIT 6 MEUR vs. 5.5 MEUR our estimate).

Favorable mix in W&E and higher sales in IM impacted EBIT

In the fourth quarter 2018, operating result was higher than estimated due to higher than estimated gross profit and other operating income. In W&E, gross margin was higher than estimated due to favorable sales mix. In IM, net sales were higher than estimated resulting in higher operating result. Other operating income included EUR 1.5 million of reversal of earn-outs and other contractual liabilities related to acquisitions in the recent years.

2019E growth mainly non-organic, TP 19 and HOLD recommendation maintained

We estimate Vaisala’s net sales to grow 11% to 387 MEUR in 2019E. Growth is mainly driven by the Leosphere and K-Patents acquisitions (adding 24 MEUR and 12 MEUR to top line in 2019E). We estimate 2019E EBIT to be 45 MEUR. On our estimates Vaisala is trading at 2019/20E at P/E 20.4 and 17.9, which is ~17% higher than peer group. On our estimates, EV/EBIT multiples for 2019/20E are 14.5 and 12.8 respectively, which are in line with peer group. We await some more color from the Q4 call, especially regarding China and the W&E project outlook. We retain our HOLD recommendation and target price of 19 euros.

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