HMS Networks (Sell, TP: SEK450.00) - Transitional quarters ahead
We see a puzzling disconnect between our 25% YOY EPS drop for 2024e (including Red Lion) and HMS Networks’ lofty 36–24x pro forma 2024–2025e EV/EBIT. Order backlog signals a likely weak H1e, and we have cut our 2024–2025e EPS by 11–3% and are 17–7% below Visible Alpha consensus on 2024–2025e EBIT. HMS Networks is arguably a high-quality business, the Red Lion acquisition should create meaningful shareholder value medium-term, and an end-market trough is probably close, but we believe the stock is priced for perfection during what could be a transitional year. We reiterate our SELL and have reduced our target price to SEK450 (455).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.
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