Translation: Original published in Finnish on 12/11/2024 at 7:06 am EET.

Kitron is in our view a fairly good peer to Scanfil, while Incap has been developing at a different pace than most of its peers for a longer period of time. Kitron expects the market to start recovering gradually next year, but at least in some of Scanfil's key segments of industrial electronics, the recovery in demand may be delayed until early 2026.   Relative to Kitron's guidance, the organic growth and earnings growth expectations for Scanfil next year in our forecasts, and especially in the consensus forecasts, are quite challenging.

Recovery may be delayed until 2026 in at least some segments

Kitron, the Norwegian peer of Scanfil and Incap in particular, hosted a CMD last week and provided guidance for 2024. Kitron forecast revenues of 600-700 MEUR and an EBIT of 42-63 MEUR for 2025. This implies a more or less stable operational development measured from the midpoint of the range, if the current year's guidance is used as a benchmark (2024e: revenue 635-660 MEUR, EBIT 44-50 MEUR including 5 MEUR restructuring costs). According to Kitron, demand in the defense and aerospace sectors will remain strong, especially in Europe, while in other segments the company expects demand to recover in 2025 and early 2026.

Kitron maintained its financial goals for the longer term at the CMD, with medium-term goals including revenue of 1 BNEUR, organic growth of 10% and an EBIT margin of 9%. However, the company acknowledged that the timeframe for achieving these goals will depend on the timing of inorganic growth and market turnaround.  

Our Scanfil forecasts are challenging compared to Kitron's outlook

We forecast Scanfil revenue growth of 9% and adjusted EBIT growth of 11% next year. Approximately 40% of the growth and earnings increase will come from the SRX acquisition, while our expectations for improvement in other areas are based on the gradual recovery of demand in line with European economic growth and the traction likely to be generated by the company's sales successes this year. Even after adjusting for the acquisition, our projections for Scanfil appear quite challenging relative to Kitron's guidance and the underlying demand in the various segments, given Scanfil's low exposure to the defense segment with strong near-term growth and high exposure to the industrial electronics segment with a weaker outlook (e.g., Kitron pointed to a risk of ~5% decline in industrial electronics demand in 2025). Scanfil's consensus estimates for next year are even higher than our own estimates, both in terms of revenue and EBIT.

In our current forecasts, we expect Incap's organic revenue growth to be around 10% and organic EBIT growth to be around 14%. However, Incap has been on a different path than its peers for some time, which we believe is due to the single large customer in Incap's customer portfolio and Incap's exposure to this customer's business performance. In addition, Incap appears to have outperformed the overall market in terms of growth in other customer accounts this year. Thus, we feel that there is less to be gleaned from the comments of Kitron or other peers concerning Incap's outlook.