Detection Technology: Growth drivers are still there - Evli
Earnings growth may not resume before Q4’25
ANNONS
DT cut Q2 guidance as security CT installations remained at a lower-than-expected level especially in Southern Europe; MBU and IBU still grew, but we estimate SBU revenue declined 24% y/y. We estimate DT Q2 revenue at EUR 24.1m, down 8% y/y. Earnings face another headwind due to unfavorable mix, and so we expect Q2 EBITA to fall by more than EUR 1m y/y to EUR 2.2m. Q2 will likely be the relatively weakest quarter this year, but Q3 EBITA may also decline y/y even if top line holds steady.
Security growth drivers remain intact
MBU and IBU saw slower organic growth than SBU not long ago, but the situation has at least temporarily reversed as the medical market in China is recovering while industrial TFT sales take off. Meanwhile SBU could see some gradual improvement in Q3, but it might not resume growth before Q4. DT has however recently unveiled a new detector family for high-speed cargo scanning; in our view there could be significant growth potential for DT within cargo and vehicle inspection at border checkpoints thanks to many recent developments, including the Nato pledge to spend 1.5% of GDP on things like infrastructure, however the relevant market size is still only a fraction of airport security screening while DT’s sales have amounted to only some millions.
Valuation could turn very attractive towards next year
DT’s FY’25 earnings are likely to decline a bit, even if revenue grows a couple of percentage points, as earnings mix tilts more towards MBU instead of SBU. We estimate FY’25 EBITA to decline by some EUR 1m; Q3 could reach almost flat results, while Q4 and FY’26 have strong potential to improve assuming SBU volumes recover. We expect double-digit SBU revenue growth beginning from Q4 and should such a rate be sustained next year DT could grow by almost 10%. DT should then be able to reach 15% EBITA margin, which would imply more than EUR 4m in earnings growth next year. The lack of growth so far this year is a disappointment, but DT is valued only around 10x EV/EBIT on our FY’25 estimates, while better FY’26 would imply a multiple of only about 7x. We retain our EUR 12.0 TP and ACCUMULATE rating.
