Vaisala - Pressure on profitability in 2019

Vaisala’s dividend proposal was in-line with expectations, but outlook was slightly weaker than expected. Due to increase in R&D and sales & marketing spend, we’ve cut our EBIT estimates for 2019. We maintain HOLD recommendation with new target price of EUR 18 (prev. 19).

Outlook for 2019

Vaisala expects market for traditional weather solutions to be flat in 2019, while market for industrial measurement solutions is expected to continue to grow in all regions. Increasing investments in R&D and sales & marketing are expected to burden profitability in 2019. Vaisala estimates its full-year 2019 net sales to be in the range of EUR 380–400 million and its operating result (EBIT) to be in the range of EUR 25–35 million including EUR 10–12 million acquisition related amortization and one-off expenses related to a lease contract. The new outlook with an adjusted EBIT range of EUR 35-47m was slightly weaker than what we had expected; our previous EBIT estimate of EUR 45m (46m cons) being in the higher end of the range.

Estimates revised down for 2019

We expect Vaisala’s 2019E net sales to be EUR 385m representing +10% growth y/y. Sales growth will be driven by the recent acquisitions, Leosphere and K-Patents, which we estimate to add around 24 MEUR and 12 MEUR to top line in 2019E. We’ve adjusted our 2019E EBIT estimates downwards to reflect increase in R&D and sales & marketing spend. We estimate 2019E reported EBIT to be EUR 31m (EUR 42m adjusted for EUR 11m PPA and one-off expenses). For 2020-21 we expect 3.6% and 4.3% growth, with operating margin improving to 11.6% and 11.8% respectively.

HOLD maintained with new TP of 18 (prev. 19)

On our revised estimates Vaisala is trading at EV/EBIT and EV/EBITDA multiples that are ~10% lower than our peer group, but we see this as fair given the near-term weaker outlook. We maintain HOLD recommendation with TP of EUR 18 (prev. 19).

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