Scanfil Q3 morning result: Numbers met the expectations updated after the profit warning

Translation: Original comment published in Finnish on 10/27/2023 at 9:11 am EEST

Scanfil released its Q3 result this morning, which was in line with our forecasts we cut after the October profit warning. Scanfil repeated its recent guidance in the report. The outlook for the rest of the year still seems fairly good thanks to the healthy demand situation, but the risks related to next year remain unchanged. Our preliminary estimate is that the report will not lead to significant forecast changes, at least for this year.

Scanfil’s comparable growth remained at a good level and profitability was strong

Scanfil’s reported turnover was at the level of the good comparison period in Q3, which marginally exceeded our forecast. When the figures are adjusted for the clearly lower spot purchases in Q3 due to improved component availability from the comparison period that were slightly higher than we expected, organic growth was at a very strong 9% level relative to Scanfil's history. We estimate that comparable growth was volume-driven, although prices have probably also increased slightly driven by inflation. Growth by segment started to polarize in Q3 as Energy&Cleantech and Connectivity continued to grow strongly by 30-40%. In other segments, comparable sales were stable or decreased in Q3.

Profitability exceeded the company’s target level slightly in Q3 for the second quarter in a row

Scanfil’s EBIT increased in Q3 from a subdued comparison level burdened by supply chain problems by 32% to EUR 15.2 million, which was in practice the same as our estimate. Profitability (EBIT-%) increased marginally above Scanfil’s target level of 7% for the second quarter in a row due to high turnover and capacity utilization, increased efficiency, and successful inflation management. There were no surprises in the lower rows of the income statement, so EPS, which increased clearly to EUR 0.17 from the comparison period with the operational result, was exactly in line with our expectations. In terms of cash flow, the report does not seem particularly strong, especially relative to the typical seasonal nature of Q3, as working capital seems to be committed further during growth. However, cash flow improved clearly from the weak comparison level also in Q3.

According to our preliminary assessment our estimates are not subject to significant change pressure

Scanfil naturally reiterated its recent guidance and the company estimates its turnover for 2023 to be EUR 880-920 million and adjusted EBIT to be EUR 60-66 million. According to the comments, the demand outlook for the rest of the year is quite good, but at first glance the report does not disperse the uncertainties related to next year. The clearest risks are still related to maintaining demand that is dependent on the global economy. Our result forecast for this year was slightly below the mid-point of the range, so according to our preliminary estimate, our forecasts are not subject to significant change pressure based on the report. Nor do we anticipate any considerable change pressure to our estimates for next year that expect a slight result drop.

Scanfil’s new CEO Christophe Sut said in his review that he is working on a strategy update, which is a very normal step when the CEO changes. The update will be announced at the beginning of 2024. In principle, we only expect moderate focus revisions in Scanfil's profitable growth strategy that seems to be working.