Incap

Incap has agreed to acquire Lacon for an equity value of EUR 50m. Lacon has customers in the railway, medical and defence sectors. The acquisition could take revenue growth close to 40% in 2026, but the company expects the transaction to have only a small positive impact on EBIT in 2026. Based on the acquisition price, we calculate EV/EBIT of 12.7x for 2025E. The valuation of the deal is clearly above Incap's valuation but close to 2026E peer group median EV/EBIT. Incap's net sales and clean EBIT are declining y/y in 2025, which is one reason why its valuation has been at a discount compared to that of the peer group. Overall, we view the acquisition as a positive trigger for the equity story. Our new fair value range is EUR 11.7-14.3 (11.1-13.6), based on our DCF analysis and backed by a peer group comparison.

Incap acquires Lacon which has production sites in Germany and in Romania. Lacon has customers in defence, railway and medical technology sectors which could be hard to get on organic basis. Acquisition price is EUR 50m indicating EV/EBIT of ~12x in 2025E we calculate (Incap EV/EBIT 2025E 8.6x, Sector median EV/EBIT 12x 2026E). Lacon offer even ~30% revenue growth for Incap. However, Lacon’s revenue growth could be negative in 2025 y/y as was the case in 2024. Lacon's EBITDA margin has been 9-10% in 2023-25E (Incap 15%). The transaction will be financed with cash and a bank loan of EUR 30m. Regardless Incap's and Lacon's organic growth could be negative in 2025E, the transaction offers more defence related business and could be positive trigger for the equity story.

A trade war between the US and India created headwind for Incap's operations in Q3. Net sales in Q3 were 8% below LSEG Data & Analytics consensus, while the adjusted EBIT margin was 11.1%,  compared to consensus of 12.4% . The company anticipates an improvement in Q4 and confirmed its full-year guidance. We still downgrade our net sales forecast for 2025 by 3%. However, a possible trade deal between the US and India could be a clear positive trigger for Incap in Q4. Our fair value range remains at EUR 11.1-13.6 per share, based on our DCF analysis and backed by a peer group comparison. We forecast 14% revenue growth for next year due to the low comparison point and in view of a possible agreement between the US and India in their trade negotiations. Incap's 2025E-26E P/E and EV/EBIT combined are currently ~37% below the peer group median. Uncertainty related to orders could sustain a valuation discount to the peer group.

Volumes were down and utilisation ratios weaker than year ago in Q3, like the company had anticipated. Market hesitation has continued and some customers have postponed their projects. We forecast that product prices were also down in Q3 y/y. End demand has not been growing in the EMS industry, by excluding Defence&Aerospace sector. About 20% of Incap's net sales is affected with higher tariffs between India and the US we believe. Negative FX effect also affected to Incap's Q3 numbers. Overall, the company's net sales and clean EBIT were below market consensus (LSEG) in Q3. The production mix was not very favourable for its EBIT margin in Q3. However, sales pipeline looks promising for Q4 2025. We believe net sales and EBIT in Q4 2025 could be above Q3 but still under prior year of Q4 2024.

The trade war has both directly and indirectly negatively affected Incap. The US has imposed a 50% tariff on most exports from India, and Incap has customers that export to the US. The company's biggest site is in India, but another round of trade negotiations between India and the US is set to begin this week. Overall, the company's Q3 might not be a clear positive trigger. Moreover, we do not expect to see a full-year guidance upgrade. Our fair value range for Incap's share remains at EUR 11.1-13.6, based on our DCF analysis and backed by a peer group comparison. Incap's 2025E-26E P/E and EV/EBIT combined are currently ~31% below the peer group median. This valuation discount to the peer group comes from a negative estimate revision trend and from y/y declining revenue and EBIT for 2025E. Median revenue growth of the peer group  is 5.4% for 2025E.

Some customers have postponed their orders due to uncertainties related to the US trade war. Another negative driver for the weak Q2 was depreciation of the USD and INR against the EUR. We downgrade our estimates because of the negative profit warning issued on 22 July 2025. A trade deal with the US and India, however, could be a positive trigger for Incap in H2 2025. Our new fair value range for the Incap share is EUR 11.1-13.6 (12.1-14.8), based on our DCF analysis and backed by a peer group comparison. Incap's 2025E-26E P/E and EV/EBIT combined are 19% below the peer group median. With declining net sales and declining EBIT in 2025 y/y, we believe Incap could maintain small valuation discount to peers. - Marketing material commissioned by Incap.

Net sales and clean EBIT were below market consensus (LSEG) in Q2. Incap already downgraded its full year outlook on 22 July 2025. Market hesitation has continued and some customers have postponed their projects due to uncertainties related to US tariffs. Negative FX effect also affected to Incap's Q2 numbers. The company expects the uncertainty in the global market to persist, particularly around tariffs, taxes, and geopolitical developments. Outlook in the short term is not strong but green technology investments will continue in the long term, regardless of weakening political support in the short term.

Incap downgraded its full year outlook on 22 July 2025. Net sales is now guided to EUR 210–230m (previously EUR 230-276m, LSEG consensus EUR  237m). Net sales guidance midpoint came down by 13%, and was 7% below consensus. New EBIT guidance is EUR 23-29m (previously above EUR  29m, consensus EUR 30m). New full year 2025 EBIT guidance midpoint is 12% below consensus. Market hesitation has continued in Q2. Some customers have postponed their projects due to uncertainties related to US tariffs. Moreover, weaker USD against EUR affects to reported numbers. Incap Q2 report will be published on 25 July 2025.

Incap has guided for net sales to grow by 0-20% for 2025. The midpoint of 10% could be challenging to reach, so we see more downside than upside risk when it comes to the full-year guidance. LSEG Data & Analytics consensus for revenue growth is already at 3.7% for 2025, so a guidance downgrade to flat growth would not be a major disappointment. Moreover, we believe green technology investments will continue in the long term, regardless of weakening political support in the short term. Incap's 2025E-26E P/E and EV/EBIT combined are currently ~20% below the peer group median. However, risks related to flat EBIT and flat net sales y/y for 2025E could hinder multiple expansion in the short term. 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.

Today, we hosted a presentation by Incap's CEO Otto Pukk, at our virtual Nordic EMS seminar on Thursday (June 5). Key takeaways were related to Incap's good profitability and for the full year outlook. Our conclusion is that Incap's decentralised business model continue to offer a competitive edge compared to its competitors. Regardless there is some hesitation in the EMS markets, Incap is confident regarding its full year 2025 guidance of growing net sales and EBIT. Only minor part (6-7%) of the company's total revenues are related to defence sector. The company sees that end consumers are going to pay the bill regarding higher tariffs and logistic costs. However, massive overcapacity in China could lead to increased offering in Europe and even take down input costs and end prices in Europe. Overall, investments to green technology will continue, regardless of volume decreases seen in several sectors. Incap's 2025E EV/EBIT is currently 35% below the peer group median according to our analysis.