Cavotec: Increased confidence in H2 profitability - ABG

Strong backlog, growth in sales and break-even EBIT ‘22e EBIT up 2%, ‘23e-‘24e EBIT down 9-4% ‘24e EBIT 4x above ‘22e, 24% org. sales CAGR ‘22e-24e Airports exit and sales ramp-up the two key positives

Cavotec delivered a reassuring Q2 report, as the order backlog (excl. Airports) grew 98% y-o-y (+8% vs. ABGSCe) and 23% q-o-q. Although management noted weakening activity in its Industry and short-cyclical businesses, demand for shore power and automated mooring remained strong. In addition, sales grew 20% organically (+17% vs. ABGSCe), which yielded close to break-even EBIT in Q2. We believe this supports our view that the impending ramp-up in deliveries during H2’22e (sales of EUR 37-45m vs. 32m in Q2) should yield positive EBIT from Q3’22e, and margins of 8-14% (New Cavotec had 9-16% margins in H2’19 on quarterly sales of EUR 33-34m). FCF was still negative, but we expect the impending Airports sale (29 July, ~EUR 5m net cash), improving working capital and higher earnings to significantly improve gearing.

Factoring in weaker economic activity, backlog is supportive We raise our ‘22e EBIT by 2% on the back of a strong Q2 report and a solid backlog. However, we lower ‘23e-‘24e EBIT by 9-4%, as we factor in weaker economic activity from H2’22. For ‘22e-24e, we forecast a 22% organic sales CAGR, which in combination with an EBIT margin hike from 5.0% to 12.7% should yield a ‘24e EBIT 4x above ‘22e.

9-5x EBIT ‘23e-‘24e, 4-9% FCF yields, ~20% ROCE from ‘23e Following an extended period of external headwinds and the prolonged exit of its Airports division, we believe that the restructured Cavotec will deliver profitable growth from H2’22e. Underlying regulatory trends remain strong, and we believe that Cavotec should surpass its 12% EBIT margin target in 2024e. We estimate that Cavotec is trading at 24x EV/EBIT ‘22e and 9-5x EBIT ‘23e-‘24e, while offering 4-9% lease adj. FCF yields ‘23e-‘24e, close to zero net debt (excl. leasing) YE’22e and a ~20% ROCE from ‘23e.

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