HMS Networks (Sell, TP: SEK230.00) - Valuation decoupled from earnings
We believe HMS Networks’ valuation has decoupled from its earnings. We like the company and its long-term story, and forecast a 2020–2023e EPS CAGR of 17%. However, the stock is now trading at a 2022e EV/EBIT of 36x, well above its historical average, and we calculate a 2025e EV/EBIT of 21x based on it meeting its ambitious 17% sales CAGR target (including M&A). We have downgraded to SELL (HOLD), but reiterate our SEK230 target price based on a 2022e EV/EBIT of ~25x.HMS Networks AB (HMS) is a Sweden-based company engaged in the provision of communication technology for industrial automation. The Company provides solutions to connect industrial devices to networks and products enabling interconnection between different industrial networks. The Company's products are classified into two brands, namely Anybus and Netbiter. HMS, under the brand name Anybus, manufactures and markets intelligent communication technology for machines and electrically controlled equipment. Under the brand name Netbiter it develops and sells communication equipment that facilitates remote management through the Internet, either via the fixed telephony network or the mobile telephony network. The Company operates through numerous subsidiaries, including HMS Industrial Networks AB, IXXAT GmbH, a supplier of communication technology for industrial automation, machine manufacturing and the automotive industry, as well as eWON SA.
DNB Markets is the investment banking arm of DNB Bank ASA and is focused primarily on the Nordic region, as well as internationally on niches such as global shipping, energy and related services, and seafood. DNB Markets offers services in FICC, Equities and Investment Banking advisory from offices in Oslo, Stockholm, London, Singapore and New York. Equity research coverage is offered on c250 Nordic companies. DNB was ranked no.2 in Extel Nordic Research 2017. The DNB Markets’ Credit and FICC Macro & FX Research teams are repeatedly highly rated by Prospera Nordic Institutional Investor Surveys.
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