Q3’18/19e (Oct-Dec) due on 29 January

We expect 10% sales growth and 13% EBITA growth

Valued below peers, but greater margin potential

A solid Q3 – and confidence in organic growth ahead
For Q3’18/’19e (Oct-Dec) we expect sales growth of 9.6% (3% organic), and EBITA growth of 13%. We think that the impact from component shortage was insignificant, and that Mechatronics and Electronics will be the main organic sales drivers. We anticipate decent underlying growth in ’18e/’19e, and onward, due to leverage on export initiatives and the deceleration of out-phasing of distribution products. We believe, however, that the market is still cautious about discounting a healthy organic growth trajectory, which is why this will probably be the focus of the report. Regarding margins, we expect 12.9% (12.5%), driven mainly by the continuing rebound in Mechatronics and a good performance in Niche Products boosted by the acquisition of Tormek. See page 3 for expectation highlights by segment.

Minor changes. Expect c2% organic growth ’19e-’20e
Our estimates are only fine-tuned, and incorporate the latest acquisitions Schmitztechnik GmbH and Gammadata (add-on asset acquisition by Radonova), with assumed consolidation on 1 January, adding c. 1% to ’19e/’20e sales. Organic sales growth in ’19e/’20e-’20e/’21e is nudged down to 2.1%-1.9% (2.7% for both years) on the assumption of a slightly softer business environment in general. All in all, EBITA is unchanged for ’18e/’19e and -1% for ’19e/’20e-’20e/’21e.

Accelerating margins vs peers – at EV/EBITA 12x
We are confident in the path for long-term margin improvements (13.0% in ’18e/’19e to 14.1% in ’20e/’21e), mainly through an increased proportion of proprietary products (70%, from today’s 55%, is reachable in some years). Also, a higher gross margin should provide funds for opportunistic, value-adding initiatives and still leave room for high earnings growth. EV/EBITA ’19e of 12x (EV/EBIT 14x) is 15% lower than peers, but with stronger margin
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