contentSlug

type

ContentSlug_ContentQuery

slug

ContentPageContentQuery

content

trendingContent

query ContentSlug_ContentQuery(
  $contentSlug: String!
  $type: [ContentType!]
) {
  ...ContentPageContentQuery_13QmVO
}

fragment CompanyDetails_Content on Content {
  __isContent: __typename
  companies {
    name
    description
    pageUrl
    id
  }
}

fragment ContentBasicInfo on Content {
  __isContent: __typename
  id
  type
  title
  lang
  companies {
    viewerIsFollowing
    id
    name
    pageUrl
  }
  tags {
    viewerIsFollowing
    id
    name
    pageUrl
  }
  ...PublishingDetails
  ...Reactions
}

fragment ContentMetadata on Content {
  __isContent: __typename
  type
  title
  lang
  pageUrl
  alternatePageUrls: translations {
    __typename
    pageUrl
    lang
  }
  imgUrl
  description
  ... on Video {
    liveTime
    videoUrl
  }
  ... on Webcast {
    liveTime
    videoUrl
  }
}

fragment ContentPageContentQuery_13QmVO on Query {
  content(slug: $contentSlug, type: $type) {
    __typename
    id
    type
    title
    isPremium
    lang
    htmlBody
    summary
    companies {
      forum {
        latestPosts {
          ...ForumPosts
        }
      }
      name
      id
      viewerIsFollowing
      pageUrl
      defaultInstrument {
        isin
        id
        marketOpen
        marketClose
        marketplace {
          region
        }
        returns {
          total
        }
      }
    }
    tags {
      viewerIsFollowing
      id
      name
      pageUrl
    }
    createdAt
    ... on Video {
      liveTime
    }
    ... on Webcast {
      liveTime
    }
    slug
    ... on CompanyReport {
      reportUrl
    }
    ... on ThirdPartyCompanyReport {
      reportUrl
    }
    ... on StockExchangeRelease {
      reportUrl
    }
    ...ContentBasicInfo
    ...ContentMetadata
    ...PriceAndRecommendation_Content
    ...CompanyDetails_Content
    ...ReportLink_Content
    ...KeyFigures_Content
  }
  ...TrendingContent_1jQ2Cn
}

fragment ForumPosts on ForumPost {
  text
  likesCount
  url
  author
  postedAt
  authorImgUrl
}

fragment KeyFigures_Content on Content {
  __isContent: __typename
  companies {
    defaultInstrument {
      estimateData {
        modelType
        reportingCurrency
      }
      snapshot {
        transaction {
          date
          actualized {
            year
            quarter
            revenue
            revenueGrowth
            ebitAdjusted
            ebitReported
            ebitda
            enterpriseValue
            epsAdjusted
            dividend
            dividendYield
            sharePrice
          }
          estimates {
            year
            quarter
            revenue
            revenueGrowth
            ebitAdjusted
            ebitReported
            ebitda
            enterpriseValue
            epsAdjusted
            dividend
            dividendYield
            sharePrice
          }
        }
      }
      id
    }
    id
  }
}

fragment PriceAndRecommendation_Content on Content {
  __isContent: __typename
  createdAt
  companies {
    name
    pageUrl
    defaultInstrument {
      priceData {
        tradeCurrency
      }
      snapshot {
        priceData {
          date
          lastPrice
          tradeCurrency
        }
        transaction {
          date
          recommendation
          targetPrice
        }
        prevTransaction {
          recommendation
        }
      }
      id
    }
    id
  }
}

fragment PublishingDetails on Content {
  __isContent: __typename
  createdAt
  publishers {
    name
    imgUrl
  }
  authors {
    __typename
    id
    name
    slug
    imgUrl
    jobTitle
  }
  ... on Video {
    liveTime
  }
  ... on Webcast {
    liveTime
  }
}

fragment Reactions on Content {
  __isContent: __typename
  id
  reactionGroups {
    reactionType
    reactionsCount
    viewerReacted
  }
}

fragment ReportLink_Content on Content {
  __isContent: __typename
  type
  isPremium
  ... on CompanyReport {
    reportUrl
  }
  ... on ThirdPartyCompanyReport {
    reportUrl
  }
  ... on StockExchangeRelease {
    reportUrl
  }
}

fragment TrendingContent_1jQ2Cn on Query {
  trendingContent(type: ARTICLE) {
    __typename
    id
    title
    lang
    pageUrl
    createdAt
    type
    imgUrl
    companies {
      squareLogoUrl
      name
      id
    }
    authors {
      __typename
      imgUrl
      id
    }
    publishers {
      imgUrl
    }
  }
}


__typename

title

isPremium

lang

htmlBody

summary

companies

createdAt

publishers

authors

reactionGroups

pageUrl

translations

imgUrl

description

Head of Research

Antti Viljakainen

Incap operates in the industrial sector. The company supplies equipment and services for industrial players, where the range includes PCB assembly, system integration, box building integration, design validation, and inspection methods. The largest operations are found in the Nordic, Baltic and Asian regions. The company was originally established in 1985 and is headquartered in Helsinki.

Without taking a strong stance on whether Note’s or Incap’s view on the multidimensional question is more correct, I cannot, however, believe that the reflections of the German automotive industry’s problems on the EMS sector would remain only within Germany’s borders. Goods, however, move mostly freely in mainland Europe, and the automotive industry’s supply chains are complex and multidimensional, so surely this should be more widely visible in Europe. So far, Nordic EMS companies have achieved relatively healthy profitability in Europe, whereas challenges have likely been more on the side of volume growth than margins (i.e., prices). The automotive industry is largely high volume / low mix production, where different players are strong compared to Nordic contract manufacturers focused on high mix / low volume (of course, this is just a general rule and, to my understanding, Incap also supplies products to the automotive industry, at least from Slovakia). The transition also doesn’t happen overnight, but as the demand problems of the big players persist, overcapacity naturally tends to spill over, in one way or another, to other tables as well.

@Verneri_Pulkkinen, do you have any educated guesses as to how much the automotive industry currently has a monetary production deficit compared to some good previous years, and how the magnitude of this production deficit relates to new defense, infrastructure, etc. investments? I noticed that Lacon seems to be not only in the defense sector but also heavily in public infrastructure, such as rail transport. If we assume, in a basic model, that large investments are made in infrastructure and defense that replace or even surpass the lost automotive industry production, then Lacon is, at least based on its references, quite reasonably positioned. Of course, Lacon’s revenue has decreased, so that also tells us something. However, if it had increased, how much higher would the price tag have been? I consider this a good purchase in the sense that an opening in Germany has been desired for years. I don’t remember how many years it has been since it was mentioned that the key targets for establishing our own facility are the USA and Germany. Now both have been taken care of, and the geographical coverage is exceptionally well diversified. I have also started to lean towards the view that NOTE’s Lind-Widestam is an optimistic speedster. When things are going well (usually with his own company), he exults that this is just the beginning and things will only get better soon (lately they haven’t). And when things are going badly somewhere in the EMS sector, then… well… the beginning of the end. In the stock market, excellent returns are often made when one knows how to buy something valuable whose price is not high because others don’t consider it valuable. I don’t know anything about buying companies, but could the same logic apply there? Lacon’s price is not cheap, but it’s not really expensive either. If it provides significant exposure to Germany’s and other Central European’s expanding infrastructure and defense investments, now might be a good time to make such a deal.

I recently wrote in the Note thread about their view that it’s not worth looking for acquisitions from Germany because the downturn in the automotive industry pushes players to seek growth from other sectors. This, in turn, intensifies competition and squeezes margins. Incap goes against the current with this view.

Inderes              Incap: We expect ~40% y/y revenue growth in 2026 - Nordea - Inderes    Incap has agreed to acquire Lacon for an equity value of EUR 50m. Lacon has customers in the railway, medical and defence sectors. The acquisition could take revenue growth close to 40% in 2026...

The comment on the deal can be found here. Indeed, Lacon’s numbers seem to be declining this year, and based on them, Incap likely agreed to pay relatively high multiples. On the other hand, the earn-out portion of the share capital’s value is only 10%, but to achieve it, Lacon must improve its EBITDA at a rapid pace (i.e., about one-third of the 2024 realization and probably even more from 2025 figures). This combination could perhaps mean, for example, that there is a consensus on Lacon’s positive outlook for next year, as Incap seems to be paying a bit in advance, but on the other hand, the sellers must improve significantly to raise the purchase price relatively little. For comparison, Scanfil built the SRX and MB deals on significantly larger earn-out provisions. Lacon will dilute Incap’s profitability at least initially, but I’m not particularly worried about this. In this acquisition (as well), I believe it’s more about how much the capital invested in Lacon will yield over time, and that, in turn, will be affected in the future (the majority of the invested capital is locked in with the purchase price) especially by the company’s profitable growth and commercial synergies with Incap’s other customers.

Nordea published a quick comment:                   Inderes              Incap acquires Lacon for EUR 50m - Nordea - Inderes    Incap acquires Lacon which has production sites in Germany and in Romania. Lacon has customers in defence, railway and medical technology sectors which could be hard to get on organic basis....                             30% revenue growth for a company of Incap’s size.  ”Acquisition price is EUR 50m indicating EV/EBIT of ~12x in 2025E we calculate (Incap EV/EBIT 2025E 8.6x, Sector median EV/EBIT 12x 2026E)” Nordea’s analyst has highlighted the same things I was wondering about myself, that Lacon’s growth looks negative and significantly weakens Incap’s profitability.

Also interesting is the strategic opening towards design and development services. The deal is also of a good size on Incap’s scale, meaning customer risk genuinely decreases with it (though it doesn’t completely disappear). It’s a bit difficult to quickly estimate the price, as there seems to be a rather significant difference between German GAAP and IFRS, at least at the level of adjusted EBITDA, for some reason. However, we will try to get wiser about this during the day.

Incap

We made no changes to Incap’s near-term earnings estimates after the Q2 report. The inventory adjustment related to the largest customer depresses the company's result to a clear downward trend at least in H2, but we do not consider the problem structural. 

<p>We reiterate our EUR 12.00 target price and Accumulate recommendation for Incap. We made no changes to Incap&rsquo;s near-term earnings estimates after the Q2 report. The inventory adjustment related to the largest customer depresses the company's result to a clear downward trend at least in H2, but we do not consider the problem structural. Incap's long-term strengths, i.e. excellent cost competitiveness and a light organization, have not disappeared and the company managed to carry out a promising acquisition in the US in July. We believe that Incap offers a good expected return for brave and patient investors at the current valuation level (2023e: EV/EBIT 9x).</p>

	2022	23e	24e
Revenue	263.8	250.6	294.4
growth-%	55.4 %	-5.0 %	17.5 %
EBIT (adj.)	40.0	33.1	39.8
EBIT-% (adj.)	15.2 %	13.2 %	13.5 %
EPS (adj.)	0.98	0.83	0.99
Dividend	0.00	0.00	0.10
Dividend %			1.0 %
P/E (adj.)	17.5	11.9	9.9
EV/EBITDA	12.0	7.6	5.7

Incap: Defense seems robust

Key Estimate Figures30.07.2023

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