Scanfil Q2'24 earnings preview: Difficulties begin and end at the top line

Translation: Original comment published in Finnish on 8/1/2024 at 7:15 am EEST.

Scanfil will publish its Q2 report on Tuesday at around 8:00 am EEST. We expect Scanfil's Q2 results to be significantly weaker than the strong comparison figures due to a decline in revenue. In its Q2 report, we expect Scanfil to reiterate the guidance that was revised slightly downward in the negative profit warning in June. We do not change our view on the moderately valued Scanfil (2024e: EV/EBIT 8x) before the Q2 report. 

Revenue down from strong year-ago level

We estimate that demand for Scanfil has been sluggish as order flow in the technology industry (Scanfil's customer base) has been in the doldrums since the end of last year due to the economic slowdown and rising interest rates. In addition, many value chains have had to reduce inventories. Reflecting this situation, we expect Scanfil's Q2 revenue to decrease by 15% to 206 MEUR from a strong comparison level, slightly below consensus. We expect revenue to decline in all customer segments, but we believe that Energy&Cleantech will survive with a much smaller decline than Industrial and MedTech&Life Science, thanks to the support provided by the green transition.

Decline in revenue also likely to weigh on profitability

We expect Scanfil's Q2 adjusted EBIT to land at 14.0 MEUR, a decline of around 20% from very strong comparison figures. Our forecast is just below the consensus. We estimate that Scanfil’s profitability declined year-on-year and was 6.8% (adj. EBIT %), as we believe that productivity improvements have been overshadowed by the decline in revenues. On the lower lines, our financial expense and tax forecasts are in line with Scanfil's normalized levels, although non-cash FX differences that are not material to the company as a whole could impact financial expense and EPS. We forecast Scanfil's EPS to decline to EUR 0.16, reflecting the operating result. From a cash flow perspective, the report should be reasonable, as the decline in revenue likely limited the seasonal working capital commitment in Q2 and H1.

Guidance updated in June will be reiterated

In its June profit warning, Scanfil forecast revenue of 780-840 MEUR and adjusted EBIT of 54-61 MEUR for the current year. We expect Scanfil to repeat its fairly recent guidance in the Q2 report. Our forecast is in the middle of the range, as we expect the company to be able to maintain relatively healthy margins through efficiency measures, despite the decline in revenue. On the market front, the sluggish demand picture for Scanfil is expected to continue in H2, as a clearer recovery in investment demand is still to come due to the subdued European economy and shifting interest rate expectations.