Cavotec: Still room for improvement - ABG

- Q2 sales EUR 43m, -7% y-o-y, order intake EUR 40m, +11% y-o-y - Minor adjustments to '24-'26 estimates - FCF positive, continued focus on working capital

Q2: Profitability improvements and positive FCF
Q2 sales were EUR 43m, -7% y-o-y (-7% org., 0% FX) and order intake came in at EUR 40m (36m), up 11% y-o-y. EBIT adj. was EUR 3.0m (1.2m) for a margin of 7% (2.6%), excluding a one-off charge of EUR -0.6m due to a cyber incident in the quarter. This converted into EPS of EUR 0.01 (-0.01) and a positive lease adj. FCF of EUR 3.6m (-5.9m). Cavotec's strategic change programmes continue to yield positive results for the company, with less pressure from low-margin orders. Furthermore, the company continues to focus on working capital, which in Q2 yielded positive FCF and lowered ND/EBITDA lease adj. to 0.2x (3.1x).

Normalising order book
We make only minor changes of <2% to '24e-'26e sales and EBIT following the Q2 report. Cavotec's strategic change programmes have so far focused on securing profitable projects, which has weighed on the order backlog. However, in its Q2 conference call, management stated that the backlog is now starting to reach normalised levels, particularly within the Ports & Maritime segment, and that it now can start to focus on further growth. However, management expressed that they are not satisfied with the development in the Industry segment and feel confident that there is room for improvement within the segment.

Long-term potential in the company intact
The share is trading at 19x-9x EV/EBIT '24e-'26e, and 38x-14x P/E, i.e. ~80-10% 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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