Cavotec - Normalised growth but improving margin - ABG

Q2e: Positive margin trends and cash flow
We expect Q2 sales of EUR 42.6m, -7% y-o-y, as growth normalises after the elevated levels in the past two years (R12m +17% org.). We estimate an order intake of EUR 42.9m (36.4m) and EBIT of EUR 1.8m (1.2m) for a margin of 4.2% (2.6%). This implies EPS of EUR 0.009 (-0.009) and FCF (lease adj.) of EUR 1m (-6m). Overall, we expect Q2 to continue to deliver positive margin trends and positive cash flow.

Estimate revisions after change of analyst
Due to a recent change of analyst, we have thoroughly revised our estimates. We now estimate '24, '25 and '26 sales of EUR 177m, EUR 189m, and EUR 204m and EBIT of EUR 10.1m, EUR 15.1m and EUR 19.8m, for margins of 5.7%, 8.0% and 9.7%, respectively. In 2020, Cavotec set financial targets of +5% annual sales growth and +12% EBIT margin in 5 years. As reflected in our estimates, we believe the company will reach its sales targets and make good progress on its margin target, but we need more confirmation before incorporating the full 12% into our estimates. Cavotec recently implemented its change programme to focus on profitable growth, which so far has benefitted margins, especially in the Ports & Maritime division, while the Industry segment has lagged. However, according to the company, areas for improvement have also been identified in the Industry division, but it expects the effects to take longer to materialise.

Long-term potential in the company
The share is trading at 19x-9x EV/EBIT EBIT '24e-'26e, and 35x-14x P/E, i.e. ~60-20% above the peer median. We continue to find the longer-term potential in shore power and industrial electrification appealing. We believe Cavotec has the potential to reach >10% EBIT margins from '27e provided management is successful with the transformation.

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