• M&A to drive growth while organically flat, EBITA margin to hold up
• H1 weakness in EMS industry, but companies remain positive on H2
• Underlying trends such as electrification remain favourable, 8x P/E

Q1e: growth through M&A, expect margin to hold up

For Q1 we expect sales of SEK 594m, growing 5% y-o-y thanks to the acquisition of AXXE, while the organic development at group level is flat. At the segment level, we estimate Inission will grow 4% organically, while Enedo shrinks 10%. We think the company will maintain its EBITA margin at 7.9%, thanks to an improved gross margin offsetting somewhat higher opex, resulting in EBITA of SEK 47m (45m). This would then convert into EPS of SEK 1.35 (1.43). We expect poor lease adj. FCF of SEK -39m (0m), held back by the repayment of the remaining SEK 82m COVID-related tax respite.

EMS industry sees weakness in H1'24

We lower '24e-'26e sales by 1% and EBITA by 2-4%, as we moderate our expectations somewhat following cautious outlooks from peers that have already reported Q1 (Note, Kitron, Scanfil). On Q1 sales these peers were down between 11% and 0% y-o-y, while margins dropped between 0.3pp and 1.4pp. The reason we think Inission's margin will hold up somewhat better is a combination of slightly easier comps and an underlying positive margin trend. The EMS industry faces a tough H1'24 as the economic slowdown has finally reached the industry; however, underlying trends such as electrification continue to give support to EMS, and the companies are maintaining their view that we will see some recovery in H2'24. For Inission's '24e, we have organic growth of 3%, in line with inflation, and a somewhat contracting EBITA margin of 7.0% (7.6%).

Trading at 9-7x '24e-'26e P/E, 25% below peers

The share is down 9% L3M (vs. peers -2%, Swedish small caps +1%), and is currently trading at 8-6x '24e-'26e EV/EBITA or 9-7x '24e-'26e P/E, while the peer medians are 9-8x and 12-9x, respectively. We reiterate our fair value range of SEK 50-70.