Survey from Almega indicates increased optimism

Small adjustments to estimates

Fair value range of SEK 115-170

Uptick in organic growth and a full quarter of Squeed
We expect that Semcon will continue to improve both sales growth and organic sales growth q-o-q in Q3e. There are two main reasons for this, in our view: 1) Q3 2020 saw the highest negative effect from COVID-19 and 2) a survey from Almega indicates that demand for industry and technology consultants gradually improved from April to July. We also note that the respondents in those two categories had a more positive outlook for demand in the coming six months in August than they had in May, which tells us that the market is generally improving. There are, of course, risks related to the component shortages, but we think Semcon will not be directly affected, as it is more focused on R&D projects. If the component shortage worsens and affects R&D investments negatively, then we think it will also affect Semcon. For Q3e, we expect sales growth of 20% y-o-y, of which 13.6% is organic. We expect EBIT of 33.6m, corresponding to an EBIT margin of 8.4% (8.5%).

Slight negative adjustments to EDS revenues
Prior to the Q3 report, we only make slight negative adjustments to the EDS segment, cutting ‘21e sales in the segment by 0.5%, and 0.3% for the group. We keep our sales growth assumption for the coming years unchanged; the 0.3% revision is extrapolated for the forecast period.in conjunction with unchanged margin assumptions,

Balance sheet still stronger than key peers
The fair value range of SEK 115-170 is unchanged and still indicates that Semcon trades below our key peer group of roughly 5-35% for ‘22e P/E. Furthermore, Semcon has a stronger balance sheet, and if we do the same exercise for ‘22e EV/EBIT, we arrive at a valuation range of SEK 127-191. However, we would like to see further M&A track record before adjusting our fair value range to incorporate this.

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