The war in Ukraine has caused rising inflation and slower estimated GDP growth. According to FactSet consensus, ‘22 GDP growth has come down to 3% in April from 3.4% in February. However, the higher inflation, which is mainly caused by surging energy prices, could increase the urgency of Semcon’s customers and speed up the transition towards a carbon-neutral future. With this in mind, we think Semcon can fight off the short-term macroeconomic risks through its healthy exposure to digitalization- and sustainability-focused projects. We also think the more diverse sector exposure that Semcon has transitioned into in the last couple of years will benefit its pricing power with its customers, making it more likely to be able to raise prices to compensate rising wages given the current inflation is likely to raise wage demands. For Q1, we expect sales growth of 21% y-o-y (8% organic) and an adj. EBIT margin of 11.2% (11.0%).
M&A story is growing stronger
Semcon recently acquired Goodpoint, a consultancy business with 28 employees focused on sustainability offerings. It has offices in Stockholm, Gothenburg, Lund and Nässjö and will be consolidated from 31 March. We include it in our numbers in this report and it explains our estimate revisions. We raise ‘22e-‘23e sales by 1.1-1.5% and EBIT for the same period by 0.8-1.4%.
Updated fair value range of SEK 115-164 (116-167)
Despite our estimate increases, we lower our fair value range slightly as the valuation of key peers has declined since our last update. Our new fair value range is SEK 115-164 (116-167) and is derived from an equal weight ‘22e P/E and EV/EBIT valuation of key peers. Semcon is trading at an EV/EBIT of 10.7x for ‘22e and has a net cash position of roughly SEK 200m after the acquisition of Goodpoint.
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