Cavotec: Better than expected - ABG

Continued strong backlog build-up, bank amendment
China production expected to resume mid-May
Small positive relief expected

Q1 details
Continued strong order momentum, but lockdown in China holds back deliveries. New Cavotec’s order backlog grew 91% y-o-y and 26% q-o-q to EUR 125m (+9% vs. ABGSCe 114m), due to high growth in areas such as shore power and automated mooring. New Cavotec sales declined 9% y-o-y organically (ABGSCe -16%) to EUR 27.4m (+7% vs. ABGSCe 25.7m), as the factory in China was able to deliver EUR 1.2m of the pre-announced 4m sales postponed until the factory starts again. Cavotec expects production activity to start again by mid May. EBIT came in at EUR -1.5m (ABGSCe -4.6m), due to continued growth investments while deliveries remained low. Excluding growth investments, EBIT would have been roughly break-even. Total operating cash flow (incl. discontinued ops) was negative at EUR -6m, while cash ended at EUR 9m. Deliveries should pick up shortly and Cavotec will receive the Airports payment (we estimate net cash of EUR 7m) before mid-2022. The company has also signed an amendment to its bank agreements in order to ensure full compliance with bank covenants. Finally, the CEO maintains an optimistic outlook and emphasizes that the large backlog will begin to convert into revenues mainly in 2023.

Estimate changes
We believe FactSet consensus numbers will remain fairly unchanged, to slightly up on EBIT due to lower losses offsetting deferred deliveries in Q2. Numbers could still be notable in percentage terms though.

Final thoughts
Better than expected across all line items and good to see Cavotec preemptively amending its bank agreement due to the near-term elevated gearing. The stock is up 1% L1M, vs. OMXSGI at -2%, but has underperformed the market YTD (-33% vs. OMXSGI -22%) and is trading (pre-Q1) on 24x EBIT ‘22e (7-4x EBIT ‘23e-‘24e). We believe there should be a small positive reaction on the day. The company will not be holding a conference call in ...
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