Vaisala - Upgrade to BUY
Vaisala reports its Q1 result on Friday, May 5th. Growth is foreseen, but margin improvement is yet limited with temporal pressures in fixed costs. With valuation attractive, we upgrade our rating to BUY.
Solid growth expected despite strong comparison period
Despite uncertain market, we expect Vaisala to deliver solid topline growth in Q1’23. Overall, we anticipate Vaisala’s Q1 net sales to increase by 8.7% y/y to EUR 129.1m, supported by IM’s double-digit and W&E’s mid-single-digit growth. The comparison period was strong in terms of both top- and bottomline. In particular, EBIT of W&E was robust, considering Q1 typically being its weakest quarter of the year. The comparison EBIT was supported by, for example, low usage of spot components. In addition, long-term investments made during 2022 were not visible in Q1’22 figures yet. Therefore, we expect Q1’23 group EBIT to decline by some 2% y/y to EUR 17.2m (13.3% margin). We however foresee IM’s Q1 EBIT improving in line with its solid topline growth.
Main focus on orders and comments on the future
Vaisala’s Q4’22 order book was strong, providing a good growth base for H1. Our interest in the Q1 report is on the order development and comments on the demand during uncertain market. In late April, Vaisala announced that it will report the S/DaaS revenue separately to increase visibility into its continuing services business of X-Weather. In 2022, X-Weather’s net sales amounted to EUR 28.4m and, according to our assessment, the segment grew by some 25-35% y/y. In our view, such reporting allows investors to measure the value of Vaisala’s growth. Based on our estimates, X-Weather could potentially generate gross margin around 80% which in the future has a significant potential to improve W&E’s profitability.
Attractive valuation ahead of Q1 result
Given the 10% decline in Vaisala's share price since our last update, we find the current valuation quite attractive, considering Vaisala's high exposure to growing niche markets. Additionally, earnings are expected to grow with the conclusion of Vaisala's efficiency reinforcement programs during 2023-24. With our estimates intact, we reiterate a TP of EUR 44.0. Our TP provides a decent premium to the current share price, and therefore, we upgrade our rating to BUY (HOLD) ahead of the Q1 result.
Despite uncertain market, we expect Vaisala to deliver solid topline growth in Q1’23. Overall, we anticipate Vaisala’s Q1 net sales to increase by 8.7% y/y to EUR 129.1m, supported by IM’s double-digit and W&E’s mid-single-digit growth. The comparison period was strong in terms of both top- and bottomline. In particular, EBIT of W&E was robust, considering Q1 typically being its weakest quarter of the year. The comparison EBIT was supported by, for example, low usage of spot components. In addition, long-term investments made during 2022 were not visible in Q1’22 figures yet. Therefore, we expect Q1’23 group EBIT to decline by some 2% y/y to EUR 17.2m (13.3% margin). We however foresee IM’s Q1 EBIT improving in line with its solid topline growth.
Main focus on orders and comments on the future
Vaisala’s Q4’22 order book was strong, providing a good growth base for H1. Our interest in the Q1 report is on the order development and comments on the demand during uncertain market. In late April, Vaisala announced that it will report the S/DaaS revenue separately to increase visibility into its continuing services business of X-Weather. In 2022, X-Weather’s net sales amounted to EUR 28.4m and, according to our assessment, the segment grew by some 25-35% y/y. In our view, such reporting allows investors to measure the value of Vaisala’s growth. Based on our estimates, X-Weather could potentially generate gross margin around 80% which in the future has a significant potential to improve W&E’s profitability.
Attractive valuation ahead of Q1 result
Given the 10% decline in Vaisala's share price since our last update, we find the current valuation quite attractive, considering Vaisala's high exposure to growing niche markets. Additionally, earnings are expected to grow with the conclusion of Vaisala's efficiency reinforcement programs during 2023-24. With our estimates intact, we reiterate a TP of EUR 44.0. Our TP provides a decent premium to the current share price, and therefore, we upgrade our rating to BUY (HOLD) ahead of the Q1 result.