Scanfil Q1 on Wednesday: Year-on-year decline likely, but fairly solid figures can be expected

Translation: Original comment published in Finnish on 4/18/2024 at 7:25 am EEST.

Scanfil will publish its Q1 report on Wednesday at around 8:00 am EEST. We expect Scanfil's Q1 performance to be moderately weaker than the strong comparison figures. Scanfil reiterates its guidance for the year at this stage of the year, but in order to meet the guidance, the demand environment should improve slightly from Q1 levels. We do not change our view on the moderately valued Scanfil (2024e: EV/EBIT 9x) before the Q1 report. 

We expect revenue to decline in Q1 from a strong comparison level

In our view, Scanfil's demand situation continued to soften in Q1 as order flows in the technology industry (Scanfil's customer base) developed slightly negatively at the end of last year due to the economic slowdown, the need to reduce inventory levels and rising interest rates. Reflecting this situation, we expect Scanfil's Q1 revenue to decrease by 11% from a good comparison level to 200 MEUR (growth of around -7% adjusted for spot purchases). Our forecast is at the lower end of the consensus. We expect revenue to decline in all three customer segments.

Earnings likely to flex downwards with revenue

We expect Scanfil's Q1 adjusted EBIT to land at 13.5 MEUR, a decline of around 11% from strong comparison figures. Our forecast is at the lower end of a fairly uniform consensus. We estimate that Scanfil's profitability remained at the level of the comparison period at 6.8% (adj. EBIT-%). We estimate that profitability has been supported by the fading of zero-margin spot purchases and a slight improvement in productivity, but that the benefits of these drivers are being eroded by the decline in revenue. 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 land at EUR 0.15. From a cash flow perspective, the report should be reasonable as the decline in revenue should limit the seasonal working capital commitment in the early part of the year.

Scanfil should reiterate its guidance; we think the outlook is moderate

In its financial statements, Scanfil forecast revenues of 820-900 MEUR and an adjusted EBIT of 57-65 MEUR for the current year. We expect Scanfil to reiterate its guidance in the Q1 report. We believe the guidance is realistic, although reaching at least the upper end of the range may require a further boost to investment-driven demand from lower interest rates and a pick-up in economic growth. In our view, the improving outlook for the rest of the year and the achievement of the guidance is also supported by the news flow from the technology industry, where we believe the market situation has not deteriorated further since the beginning of the year. Forward-looking macro indicators for the manufacturing sector are also already pointing to a cautious recovery.