Scanfil Q4 morning result: Guidance met expectations and cash flow compensated for slightly soft performance

Translation: Original comment published in Finnish on 2/23/2024 at 8:59 am EET.

Scanfil announced its Q4 results this morning, which were slightly below our forecasts in terms of EBIT, mainly due to some non-recurring items. However, the most important part of the report was the guidance for the current year, which was fairly balanced around our forecast and probably also around market expectations. Scanfil plans to increase its dividend again this spring, exactly as expected, by two cents to EUR 0.23 per share. The new strategy or possible target changes have not yet been disclosed by the company but will be available at the Capital Markets Day on March 5. Our preliminary assessment is that the report will not put significant upward pressure on our forecasts for Scanfl.

Adjusted growth continued but slowed down

In Q4, Scanfil's revenue decreased by 1% to 221 MEUR against a strong comparison period, which was well in line with our forecast. Revenue still included 3 MEUR of ad hoc sales related to spot purchases of components (forecast at 0 MEUR), but as expected, the level decreased by about 80% year-on-year. This was also the driver of the decline in revenue and the growth adjusted for these low-margin purchases was exactly in line with our expectations at 5%. We estimate that adjusted growth has been volume-driven, although prices have probably risen slightly. Among the divisions, growth was maintained in particular by Cleantech&Energy and also Connectivity, while reported sales in the other three segments declined from strong comparison figures. Segment growth contained no major surprises relative to our forecasts.

EBIT was flat, but cash flow exceeded expectations

In Q4, as in the comparison period, Scanfil achieved an EBIT of 13.4 MEUR, which was below our forecast of around 10% earnings improvement. The EBIT margin, which was slightly soft at 6.1% compared to the good level of sales achieved in Q4 by Scanfil's standards, was weighed down by 0.6% (or 1.3 MEUR) by charges related to restructuring, customer rebates and small spot purchases. Therefore, the soft profitability was basically due to non-recurring reasons, even though these items are at least mainly operational. In the lower lines, financial expenses turned positive against our forecasts, likely for FX and non-cash reasons. There do not seem to have been any big surprises in taxes. Scanfil's reported Q4 EPS increased by a cent year-on-year and was in line with our forecasts at EUR 0.17. From a cash flow perspective, the report was very strong and better than our expectations, with working capital, which has been heavily tied up in recent years, coming in stronger than expected in the fourth quarter as growth calmed and supply chains stabilized.

Forecasts hit within the guidance ranges

Scanfil's guidance for 2024 is that the company's revenue will be 820-900 MEUR and adjusted EBIT 57-65 MEUR. Prior to the Q4 results, we forecast that Scanfil would achieve an EBIT of 59 MEUR on revenue of 852 MEUR this year, and we do not expect market expectations to differ materially from our forecasts. As a result, the guidance ranges were largely in line with our expectations, although the midpoint of the guidance is slightly above our forecast, indicating stable year-on-year performance. Our preliminary assessment is that the report is unlikely to lead to major forecast changes in either direction in the coming years, but we believe that the guidance, which is at least in line with expectations, is a slight relief for the risk level of the stock.