Semcon - 2021 marks a new era

Ends 2020 in style with Q4 EBIT margin 12% Sets new financial targets, growth on the agenda Fair value range of SEK 79-134 Q4: Slower-than-expected recovery, but strong profitability Semcon reported Q4 net sales of SEK 401m (-18% y-o-y), EBIT of SEK 49m (49m) and adj. EBIT of SEK 41. 6m (46m). The numbers were pre-announced, but were -4% on sales, +41% on EBIT and +21% on adj.

EBIT vs. our estimates into the announcement. The sales deviation was mainly caused by a slower-than-expected recovery in the Engineering & Digital Services (EDS) business area, especially in the automotive and manufacturing sectors.

The adj. EBIT beat was mainly driven by EDS profitability improvements, which is a positive long-term signal. The slower recovery is something to monitor going into 2021, but management has signaled increased demand from several industries in the report and on the conference call.

Positive revision from margin beat in EDS The biggest news in the report was that Semcon has committed to new financial targets, including a growth target of 10% (incl. M&A) and a higher margin target. We are optimistic about the new goals and think the timing makes sense, as the old targets were met during 2020.

We make slightly positive revisions following the report, as the adj. EBIT beat was to a higher extent driven by EDS. In conjunction with the higher margin target, the Q4 report boosts our confidence in the EBIT margin development into 2021.

In total, we raise ’21-22e EBIT by 2. 5%-1. 9%.

Management changes in EDS to fuel growth The management changes communicated on 22 January, with CEO Markus Granlund to replace Daniel Rundgren as head of EDS, are permanent, according to our understanding. Markus will remain as CEO, and Daniel will remain within EDS, focusing on growth initiatives and M&A. The goal is to increase the growth potential for EDS.

We maintain our fair value range of SEK 79-134, but think Semcon’s new financial targets further aligns the company with its p.