Vaisala - Soft market opens a spot to BUY
Vaisala had a two-folded quarter with W&E delivering solid 18% growth while IM saw a decline due to a soft market. The outlook remains strong for W&E, but IM’s markets remain uncertain which impacts the BU’s growth prospects in H2.
W&E delivered growth, IM was impacted by a weak market
Vaisala had a two-folded quarter. W&E grew nicely in orders received and net sales. Meanwhile, IM suffered from soft market demand and its orders received and net sales declined from the comparison period. In total, Vaisala’s Q2 orders received grew by 5% y/y and net sales amounted to EUR 130.8m with a y/y growth of 9%. Gross margin was a bit below the comparison period at 51.1% and was negatively impacted by the unfavorable sales mix and price competition of IM. Despite lower volumes and softer gross margin of IM, group EBIT improved to EUR 11.9m (9.1% margin). Profitability was supported by an increased share of high-profitable businesses of W&E.
Low industrial activity likely to decelerate net sales growth
While the outlook for W&E seems bright with megatrend-driven investments continuing, we foresee IM’s growth prospects in 2023 clearly weakening. A high share of W&E’s revenue is funded by public entities that tend to be less cyclical. Meanwhile, industrial activity has decreased, and uncertainty is elevated. Additional uncertainty is brought by IM’s short order book. After the Q2 result, we made no significant group-level changes to our estimates. In total, we expect Vaisala’s group to continue growth during 2023-24, but with a gentler slope than seen recently. EBIT is also seen to improve but relative profitability takes a setback compared to that of the comparison period. Eventually, the period is characterized by strong development of W&E and uncertainty considering IM.
Valuation remains attractive despite uncertainty
With no material reaction in the share price, we continue to view Vaisala as moderately valued. While Vaisala is priced with 23-24E EV/EBIT multiples of 20-16x, its peers are trading above that of the company. We view that Vaisala is benefiting from the robust underlying megatrends over time, despite temporary softness in customer demand, leading to a clear positive development in EPS. We retain our BUY rating and TP of 42.0, reflecting a moderate valuation.
Vaisala had a two-folded quarter. W&E grew nicely in orders received and net sales. Meanwhile, IM suffered from soft market demand and its orders received and net sales declined from the comparison period. In total, Vaisala’s Q2 orders received grew by 5% y/y and net sales amounted to EUR 130.8m with a y/y growth of 9%. Gross margin was a bit below the comparison period at 51.1% and was negatively impacted by the unfavorable sales mix and price competition of IM. Despite lower volumes and softer gross margin of IM, group EBIT improved to EUR 11.9m (9.1% margin). Profitability was supported by an increased share of high-profitable businesses of W&E.
Low industrial activity likely to decelerate net sales growth
While the outlook for W&E seems bright with megatrend-driven investments continuing, we foresee IM’s growth prospects in 2023 clearly weakening. A high share of W&E’s revenue is funded by public entities that tend to be less cyclical. Meanwhile, industrial activity has decreased, and uncertainty is elevated. Additional uncertainty is brought by IM’s short order book. After the Q2 result, we made no significant group-level changes to our estimates. In total, we expect Vaisala’s group to continue growth during 2023-24, but with a gentler slope than seen recently. EBIT is also seen to improve but relative profitability takes a setback compared to that of the comparison period. Eventually, the period is characterized by strong development of W&E and uncertainty considering IM.
Valuation remains attractive despite uncertainty
With no material reaction in the share price, we continue to view Vaisala as moderately valued. While Vaisala is priced with 23-24E EV/EBIT multiples of 20-16x, its peers are trading above that of the company. We view that Vaisala is benefiting from the robust underlying megatrends over time, despite temporary softness in customer demand, leading to a clear positive development in EPS. We retain our BUY rating and TP of 42.0, reflecting a moderate valuation.