Last week we hosted Invisio's IR Michael Peterson at ABGSC's Investor Days. Mr. Peterson highlighted the current strong momentum for Invisio, both from demand tailwinds due to increased military spending and market share gains from acquisitions (continued success of Racal Acoustics) and product innovation. Invisio is a leader in communication and hearing protection for high-noise environments, which means it is primarily exposed to military organisations (90% of sales) and law enforcement, such as police and firefighters (10% of sales). Invisio has a lean business model that focuses 1) developing and innovating products, and 2) selling products, while having outsourced all manufacturing. This leads to competitive advantages in fast and scalable production and lean value chains. This is the main explanation for the 60% gross margin, while 15% of sales going to R&D results in an EBIT margin of around 20%. Invisio expects sales to grow faster than opex going forward and reported a 17% EBIT margin YTD.
Multiple growth drivers ahead
In terms of product innovation, Mr. Peterson said that he expects sales of the Intercom system (a recently launched vehicle-based communications product) to exceed sales of Personal Systems (headsets and hearing protection) in the longer term. The penetration of advanced communications and hearing protection in the military segment is low, providing a long runway for growth. As the market is niche, slow-moving in terms of decision making and long relationships (+10 years) are preferred, we believe Invisio has established a strong market position with relatively high barriers to entry. The downside is volatile order intake, as some orders can be large and come with a less steady flow. With 80% of sales coming from government tenders and framework agreements, the current increased focus on military spending is a tailwind for Invisio. In our view, this bodes well for the company to achieve its 20% annual organic growth target, while volatility between years will continue as usual.
Global peers expected to slow in 2025, and we are below cons
Looking at both the global military peers (11 large cap names) and the two large listed radio providers (Thales and L3Harris), we note that consensus expectations are for growth rates to decline somewhat in 2025-26e from the peak in 2024e. According to SIPRI, both defense spending and especially defense equipment spending are particularly strong in 2023-24e. On the positive side, however, is that at least the average and median of the military peers continue to see positive sales estimate revisions. When modeling our 2025 forecast for Invisio, we expect continued solid growth, but we adjust for the SEK 235m third-party radio order, with most deliveries in 2024. This leads us to expect only 2% reported sales growth in 2025e on this challenging comparison, a better gross margin (the radio order dilutes the gross margin in 2024), and continued opex growth. We therefore note that our 2025e EBIT estimate of SEK 335m is 21% below FactSet consensus. With the stock up 22% since October 1, while 2025e EBITA estimates are up only 1%, the multiple has expanded 21% and the stock is trading 5% from ATH. The NTM EV/EBIT multiple is 29.9x on consensus expectations and 37.8x on our 2025e estimates.
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