Getinge (Buy, TP: SEK240.00) - Uncertainty regarding FDA issues

Getinge yesterday hosted a meeting to discuss its new long-term financial targets, where it also commented on the recent FDA communication to healthcare facilities in the US advising users to transition away from Getinge’s equipment in cardiopulmonary and cardiac assist. However, the company has limited visibility on the size of the financial impact. We reiterate our BUY, but have lowered our target price to SEK240 (255).

Mounting concerns

Increased uncertainty of earnings development. Adj. EBITA revised down 2.3%-4.5% for '24e-'26e. HOLD maintained, TP down to SEK 198 (225)

New financial targets and business update

Q1 trends, estimates, valuation and top picks

The Q1 reports proved that sector companies could maintain record-high margins despite volume declines.

Waiting for H2 growth improvement

Slower growth, solid margins in Q1. We lower adj. EBITA by 3% on slightly lower '24e growth. H2 growth recovery on easier comps, cyclical recovery, keep BUY.

Hexagon (Buy, TP: SEK140.00) - Resilience despite growth woes

As Hexagon has counteracted criticism of FCF quality, margin profile, and financial reporting transparency in recent quarters, the investor debate has shifted back to the durability of its organic growth. As Q1 showed a sequential deceleration which could persist until H2 (easier comparables), we find our re-rating case slightly postponed. We are encouraged by organic growth in areas key for the investment case (recurring portfolio), FCF strength and margin resilience, and reiterate our BUY and ...

Sales below, good margins and cash flow

Getinge (Buy, TP: SEK255.00) - Upgraded to BUY after Q1 beat

Q1 earnings were stronger than we expected, with no negative surprises. We believe consensus for the coming years looks realistic and that Getinge’s valuation (despite the recent share price rise) looks attractive. Thus, we have upgraded to BUY (HOLD) and have raised our target price to SEK255 (210).

Hexagon (Buy, TP: SEK140.00) - FCF set to catalyse re-rating

We are 3% below Infront consensus Q1e EBIT and will focus on 1) organic growth deceleration, and 2) continued FCF improvements (we are 6% above Visible Alpha consensus). For 2024, we see Hexagon outperform as it demonstrates its hallmarks despite cyclical headwinds: 1) defensive 6% organic growth YOY; 2) richer gross margin and benefits of cost savings to drive margin expansion for ~9% YOY EPS growth, with potential upside from M&A; and 3) improved cash conversion to set up 29% YOY FCF growth. W...

Getinge (Hold, TP: SEK210.00) - More of the same

We expect Q1 revenues of cSEK7.7bn and an adj. EBITA margin of c9.8% – basically in line with consensus. Given the issues in Getinge, with packaging in ACT seemingly solved later than previously assumed, it is fair to assume the negative impact will continue into Q1 and Q2 at least. We reiterate our HOLD and SEK210 target price. The Q1 report is due at 08:00 CET on 22 April.

Hexagon (Buy, TP: SEK140.00) - Short story closed

The FCF improvements in Q4 mean we can put the main short report criticism behind us. Looking to 2024, we expect Hexagon to show its hallmarks despite cyclical headwinds: 1) defensive 6% organic growth YOY; 2) a richer gross margin and the benefits of cost savings driving margin expansion, leading to ~9% YOY EPS growth with upside potential from M&A; and 3) improved cash conversion to set up FCF growth of 28% YOY. We reiterate our BUY and have raised our target price to SEK140 (135).

Getinge (Hold, TP: SEK210.00) - Limited visibility on 2024

Getinge reported weaker than expected Q4 earnings. The guidance for 2024 related only to sales (and sales was the only bright spot in the Q4 report). Thus, the company left the market in the dark, to a large extent, as to the margin trend for 2024. In Q4, the gross margin missed consensus by c270bp and the adj. EBITA margin by c180bp. The quality issues within cardiopulmonary will most likely not be resolved until H2. We reiterate our HOLD but have cut our target price to SEK210 (225).

Getinge (Hold, TP: SEK225.00) - Some margin pressure in LS

We expect decent Q4 earnings, but with margin pressure in Life Science (LS) due to the addition of High Purity New England (HPNE) and good growth in its (lower-margin) steriliser operation. We expect Getinge’s 2024 guidance to be in line with 2023 (i.e. organic growth of 3–5%) and a medium-term guidance update later in H1. We reiterate our HOLD, but have increased our target price to SEK225 (215).

Hexagon (Buy, TP: SEK135.00) - Set to return to summer highs soon

The dust is starting to settle regarding accounting and governance scrutiny, as we expected. We believe cash flow improvements in Q4e will further assure investors, while the stock remains attractive from absolute and relative perspectives assuming macro conditions weaken in 2024e. We reiterate our BUY and SEK135 target price.

Decoding Alpha

Our analysis of underlying total shareholder return (TSR) drivers for Swedish Industrial companies reveals that high returns are not synonymous with high valuations. Investors tend to overpay for ‘growth’, while cash returns such as dividends and buybacks are typically deeply discounted. We believe Autoliv, Alfa Laval and Hexagon offer the most long-term TSR potential (13–14% annualised), with SKF and Trelleborg at the other end of the spectrum (8–9%), while also concluding that several stocks l...

Hexagon (Buy, TP: SEK135.00) - FCF keeps lid on share price

Mixed Q3 results included beats in the P&L versus Infront consensus, while weak FCF kept a lid on multiples expansion potential, providing more ammunition for bears versus our bullish view. We expect Hexagon to resolve question marks at its December CMD, and show improvements in its Q4 results. We believe in-line numbers over the coming quarters would be enough to gradually reverse the negative sentiment, while improved incremental margins, a return to double-digit EPS growth YOY (from -3% in 20...

Getinge (Hold, TP: SEK215.00) - Solid Q3

Getinge beat consensus on all lines in Q3, except for order intake, which was basically in line with expectations. The 2023 guidance was maintained, which together with order intake that (although in line) was down YOY, in our view made investors more cautious on the company’s outlook. We believe management is merely being cautious and that organic sales growth should be at the upper end of the 2023 guidance. We reiterate our HOLD but have increased our target price to SEK215 (210) on our estima...

Getinge (Hold, TP: SEK210.00) - We expect an in-line quarter

We are in line with consensus ahead of the Q3 results due at c08:00 CET on 23 October. We expect weak demand in the biopharma industry to have hampered Life Science, but a decent quarter for ACT, driven by ECMO and IABPs. We do not expect the turmoil in China to have had a marked effect on Getinge. We reiterate our HOLD and SEK210 target price.

Hexagon (Buy, TP: SEK135.00) - In-line results could be enough

Uncertainty related to the recent negative market press has continued to put pressure on valuation multiples, which are close to trough levels on absolute and relative bases. We see limited scope for consensus increases, but believe in-line Q3 results would be enough to gradually reverse the negative sentiment, while improved incremental margins, a return to double-digit EPS growth YOY (from -5% in 2023e), and better cash conversion despite cyclical headwinds in 2024e should trigger a re-rating....

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