Morningstar | Elekta's 2Q Sharp Order Decline in Americas Likely Short-Term; Maintaining Our Growth Expectations
Wide-moat Elekta reported fiscal first-half results that were mainly in line with our expectations. However, we think the second quarter was not smooth for the firm, given a sharp dip in Americas order intake and no new orders on the Unity front. We are maintaining our SEK 115 fair value estimate and moat rating.Order intake was a drawback in the quarter, given that the North and South Americas market reported a 41% decline on a constant-currency basis. Management explained the order drop as mostly an operational issue attributed to U.S. service order intake. Elekta's sales team seems to have missed the renewal of service contracts, and management expects these orders to pick up in the coming quarters. A slippage in linear accelerator orders was another source of misfortune in the region. Europe, the Middle East, and Africa posted strong 43% order intake and Asia-Pacific reported 18% order intake on a constant-currency basis. The upgrade of the installed base to new systems and aftermarket services were the drivers in EMEA. In Asia-Pacific, China, Vietnam, and Korea showed particularly good growth.
With two Unity orders booked in November and ongoing discussions for two more in the Netherlands and Turkey, we expect Unity order intake to come in stronger in the second half of the year.
As in the first quarter, unfavourable geographic and project mix continued to be a drag on the year-to-date gross margin of 40.3%, 450 basis points lower versus the first half of last year. Elekta's progress towards its EBITA target of around 20% for fiscal 2018-19 seemed rather lumpy in the first half of the year. We will wait for the second half of the year to see if the increased share of mature market installations, carrying higher margins, will materialise.
Elekta AB is a human care company providing clinical solutions for treating cancer and brain disorders. Co. develops tools and treatment planning systems for radiation therapy including brachytherapy and radiosurgery, as well as workflow improving software systems across the field of cancer care. Co. has four product areas: Elekta Neuroscience, which develops solutions for the diagnosis and treatment of neurological diseases; Elekta Oncology, which develops clinical solutions for radiation therapy, imaging systems and clinical solutions for patient positioning and immobilization; Elekta Brachytherapy, which is engaged in cancer treatment based on internal radiation; and Elekta Software.
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