Incap

We believe that the company's revenue growth of 40% y/y and record-high EBIT margin of 15% in Q4 2024 were not enough for investors. Incap expects a slow start to 2025, prompting the share price to fall by 9% on 28 February. The main reason for its cautious view is geopolitical uncertainty, which could impact supply chain logistics, inventory levels and end demand in the short term. We trim our revenue estimates, but continue to believe that the company is aiming for more than 10% revenue growth in 2025. Our fair value range remains at EUR 12.1-14.8, based on our DCF analysis and backed by a peer group comparison. Incap's 2025E EV/EBIT is currently 31% below the peer group median. Marketing material commissioned by Incap.

Revenue growth was -7% in Q4 y/y by excluding the largest customer. Moreover, the company expects a cautious start for 2025 due to tariffs and geopolitical challenges, mostly linked to the new US administration. The biggest customer grew by 148% in Q4 we calculate, leading even to a 15% adjusted EBIT margin in Q4. The company guides higher net sales and EBIT for 2025 y/y. We believe the company’s internal aim is for over 10% revenue growth in 2025. We also believe market consensus for clean EBIT in 2025 is still realistic. Dividend proposal was zero (consensus 0).

Revenue growth could be as high as ~50% y/y for Q4 2024E, due to a low comparison. For 2025, we forecast 18% y/y revenue growth. The company's factory in the US is performing well, and Incap has not suffered from the relatively weak Nordic EMS market to the same extent as many of its competitors have. Moreover, orders coming from its biggest customer have recovered well. Our fair value range remains at EUR 12.1-14.8 per share, based on a DCF analysis and backed by a peer group comparison. Incap's 2025E EV/EBIT is currently 21% below the peer group median. Our fair value range indicates EV/EBIT of 9.2-11.6x for 2025E. Marketing material commissioned by Incap.

The company's Q3 net sales and adjusted EBIT were close to LSEG Data & Analytics consensus. The midpoint of Incap's new specified 2024 guidance indicates revenue growth of 5% y/y with an EBIT margin of 12.4%, which we argue is realistic. The EMS market has been challenging in H2 2024 but Incap is doing better than many of its competitors. Moreover, revenue growth in 2025 could exceed 15% with a 5pp higher EBIT margin than the peer group average. Our fair value range remains at EUR 12.1-14.8 per share, based on a DCF analysis and backed by a peer group comparison. Marketing material commissioned by Incap.

EMS market has been weak but Incap was able to improve net sales in y/y and also in q/q basis. The company’s net sales and adjusted EBIT were close to market consensus (LSEG) in Q3. Organic revenue growth without the biggest customer was 6.1% in Q3 y/y. Visibility has not greatly improved but the company’s outlook for the year remains unchanged. The biggest customer could reach EUR ~24m run rate on net sales per quarter we believe. We believe market consensus for clean EBIT in 2024 is realistic. Net sales could even grow by 15-20% in 2025 due to low comparison period.

Several EMS companies have claimed weak end demand in H2 2024. We still expect Incap to post more than 25% y/y growth in Q2 due to low comps and its customer portfolio. Incap witnessed an inventory destocking effect a year ago and is now returning to a growth path. The company has guided for net sales to grow and full-year 2024 EBIT to be about the same as in 2023. We do not see a risk of a guidance downgrade in October. Our fair value range remains at EUR 12.1-14.8 per share, based on a DCF analysis and backed by a peer group comparison. Incap's 2024E EV/EBIT is currently 13% below the peer group median. Uncertainty related to Incap's order intake has not increased, as it has for many competitors, and hence we do not believe the share deserves to trade at a discount to the EMS sector. Marketing material commissioned by Incap.

Net sales and clean EBIT were in line with consensus but the share price declined by 7.5% on results day (26 July). Incap was unable to post a clear positive surprise because it had already upgraded full-year guidance on 18 July. We believe, however, there is still room for a clean EBIT guidance upgrade later in 2024. The destocking effect from the main customer has finally come to an end and other customers are growing well. Visibility has improved and there is no problem with profitability, although price pressure is always present in the EMS sector. Incap's 2024E EV/EBIT is 14% below the peer group median. Our fair value range is EUR 12.1-14.8 per share, based on a DCF analysis and backed by a peer group comparison. Marketing material commissioned by Incap.

Net sales and adjusted EBIT were close to market consensus (LSEG) in Q2. Revenue grew 12% on q/q basis and by 2% on y/y basis. Organic revenue growth without M&A and without the biggest customer was 14% in Q2 y/y. Incap’s factory in India reached a good growth in Q2. Furthermore, visibility has increased towards the year end. To further enhance revenue growth, Incap is now looking at potential acquisitions in Europe and the Asia-Pacific region. It makes sense for Incap to invest to growth because net gearing is negative, debt is not a problem and the company can clearly create shareholder value.

Incap upgraded its 2024 full-year guidance on 18 July. A peer company, Scanfil, downgraded its full-year guidance in June, but that could be related to its own customers rather than overall weakness in the EMS sector. Incap now guides net sales to grow (previously decline) in 2024 y/y. The company's EBIT is expected to be about the same as in 2023 (previously decline y/y). Ahead of the Q2 earnings announcement, we upgrade our estimates and trim our fair value range to EUR 12.1-14.8 (11.5-14.1) per share, based on the combination of a DCF analysis and peer group comparison. Marketing material commissioned by Incap.

Incap upgraded its 2024 full year guidance. Net sales is now guided to grow (previously decline) in 2024 y/y. Operating profit is expected to be about the same as in 2023 (previously decline y/y). The destocking effect from the main customer could end in Q2, while other customers are growing very well we believe. Moreover, the company has a better visibility towards the year end. Market consensus (LSEG) for net sales growth has already been 5%. Consensus for 2024 EBIT has been EUR 28m (2023: EUR 28m). We expect market consensus for 2024 EBIT to come up by EUR 2m (7%) after guidance upgrade.