DNB Markeds med nytt kursmål 70,- (65,-)

Expanding addressable market

Q1 sales beat our estimate by ~3% and consensus by ~5%, and EBITDA outperformed by 28% and 52%, respectively. While we have trimmed our 2018e EBITDA on higher opex, we have raised 2019–2020e EBITDA by 2–10% given higher growth estimates for Bluetooth LE, as well as Thread and ZigBee. We reiterate our BUY, and have raised our target price to NOK70 (NOK65).

Q1 Sales and EBITDA beat expectations. Group sales were ~3% above our estimate and ~5% above consensus (Inquiry), while Bluetooth LE sales missed our estimate by 2% but were 4% above consensus. Earnings also surprised on the upside, with EBITDA 52% above consensus and 28% above our estimate. The strong revenue growth was driven by YOY growth across all the group’s customer segments, and an increasingly diversified customer base. The 10 largest customers now account for 30% of Bluetooth LE sales, down 4%-points YOY.
2019–2020e EBITDA raised by 2–10%. We have trimmed our 2018e EBITDA by ~2% on the back of higher opex assumptions, but have raised 2019–2020e EBITDA by 2–10% on expectation of increased growth as Nordic Semiconductor’s total addressable market (TAM) expansion following the launch of ZigBee and Thread support/compatibility, which management expects to contribute to growth in 2019. For 2020 we assume a ~250m units TAM in home/industrial automation and a 5% market share for the group.
Cellular IoT going to schedule. Management said the Cellular IoT business is going to the previously communicated timeline. +10 customers sampled its nRF91 series across the US and Europe, while work with multiple carriers across these regions for certification continued. We understand early traction is particularly high in the asset tracking/logistics, activity monitoring and smart home verticals.
BUY recommendation reiterated, target price raised to NOK70 (65). In our view, the group’s accelerating growth warrants a premium valuation to peers, and we attribute a NOK60/share (previously NOK56) value to its short-range business, assuming a 2019e EV/EBITDA (excluding Cellular IoT) of 16x (15x), and a NOK10/share (previously NOK9)value to its Cellular IoT business.