Exciting growth in Life Science (+39% y-o-y)

Small changes to our estimates

Fair value range of SEK 115-170 (111-162)

Q2: Automotive recovers, Manufacturing still recovering
Semcon reported Q2 net sales of SEK 445m (+11% y-o-y, 9% organic), which was roughly in line with ABGSCe at SEK 448m. Management continues to execute on its target to diversify the revenue mix with strong growth for Life Science sales (+39% y-o-y) within EDS and the acquisition of Squeed. We also note that Automotive revenues within EDS were up 2% y-o-y, indicating a trend shift from the six-year strategic shift away from that end market. Our thesis is that there are growth possibilities within Automotive, with autonomy and mobility acting as growth drivers in this space. On the other hand, the Manufacturing end market within EDS still has some way to go to regain y-o-y growth, with sales down 12% y-o-y in Q2 (still an improvement from Q1, which saw a 26% y-o-y decline). Adj. EBIT was SEK 40.2m (39.8m), corresponding to an adj. EBIT margin 9.0% (9.9%); we expected 9.3%.

Some ups and downs to estimates
We only make minor adjustments to our estimates following the Q2 report. In total, it results in 0-1% EBIT downgrades for ‘21e-‘23e. The revisions mainly stem from the EDS business area, where we make negative adjustments to our Manufacturing sales assumption. This is slightly offset by increases in Automotive and Life Science.

M&A activity picking up pace, still a healthy cash position
We raise our fair value range to SEK 115-170 (111-162) as the valuation of our core peers has increased since our latest update. The fair value range still corresponds to 5-35% below our key peers on ‘22e P/E. The same exercise on ‘22e EV/EBIT yields a value range of SEK 139-203. With two acquisitions since March 2020, we think Semcon has started to prove itself within M&A, and an EV/EBIT comparison makes more sense today than it did one year ago. M&A capacity is still healthy with a net cash position of SEK 198m at the end
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