Detection Technology - Positioned to grow more
DT already achieved a strong year in terms of profitability, and although earnings growth may no longer continue quite that steep going forward there’s still potential due to MBU.
Earnings gains now more challenging without sales growth
DT’s EUR 31.6m Q4 revenue was in line with the EUR 32.0m/31.5m Evli/cons. estimates, and the EUR 5.2m EBITA was also not a big surprise relative to the EUR 4.8m/5.2m Evli/cons. estimates. Q4 EBITA improved by EUR 0.6m y/y, driven by better productivity and continued favorable sales mix (higher share of SBU relative to MBU). DT already achieved cost reductions some time ago and so in our view EBITA may not grow much further in Q1’25 as temporary issues within the SBU market limit growth, however we believe the expected double-digit growth from Q2 onwards should again help profitability to improve by almost EUR 1m y/y every quarter.
Further growth should drive higher earnings from Q2’25
The US tariffs are not expected to interfere significantly with business (there is no local detector manufacturing in the US), at least not so long as they are kept within the current proposed scale. The lumpy nature of SBU sales means the unit may again be the fastest growing one after Q1, and the encouraging MBU market signs (growth in China but also beyond) after a prolonged cool period in our view indicate DT has realistic chances of reaching a streak of double-digit growth for many quarters following the recent years’ volume headwinds. We estimate DT to grow 9% this year, which should help earnings to gain by another EUR 2-3m (to around 15% margin) since costs are kept mostly in check as e.g. the site in India and general capex are not that high.
Earnings multiples remain quite low
We estimate DT’s EBITA margin to gain some 100bps more this year and also next, assuming top line continues to grow at mid-to-high single digit rates. DT is now valued 12x EV/EBIT on our FY’25 estimates, which remains a low multiple relative to peers. The largest earnings gains from the recent years’ bottom levels are now behind, but DT seems well-positioned to grow also next year especially if MBU begins to pick up pace after the last few challenging years. DT is thus valued only 10x EV/EBIT on our FY’26 estimates. We retain our TP of EUR 17.0 and BUY rating.